Case 2

A Saudi Company has budgeted sales revenues as follows

	May	June	July	August
Credit sales	SR120,000	SR135,000	SR145,000	SR90,000
Cash sales	60,000	90,000	255,000	195,000
Total sales	SR180,000	SR225,000	SR400,000	SR285,000

Past experience indicates that 40% of the credit sales will be collected in the month of sale, 35% will be collected in the following month, and 25%will be collected in the month after.

Purchases of inventory are all on account and 55% are paid in the month of purchase and the remaining in the month following purchase.

Budgeted inventory purchases are

June	SR300,000
July	250,000
August	105,000

Other cash disbursements budgeted: (a) selling and administrative expenses of SR48,000 eachmonth (including SR1,500 depreciation), (b) dividends of SR103,000 will be paid in July, and (c) purchase of equipment in August for SR30,000 cash.

The company wishes to maintain a minimum cash balance of SR50,000 at the end of each month.The company borrows money from the bank at 8% interest if necessary to maintain the minimumcash balance. Borrowed money is repaid in months when there is an excess cash balance. Thebeginning cash balance on July 1 was SR50,000. Assume that borrowed money in this case is forone month.

Required

Prepare separate schedules forexpected collections from customers and expected payments for purchases of inventory (1 mark; 15 min.).

Prepare a cash budget for the months of July and August (1 mark; 15 min.).