engage.cordonbleu.edu C M https:/. M M ACCT201 Hospitality Financial Management Problem 2 The following information relates to the cash flow activities of a small guest house. Budgeted Budgeted Budgeted Cash Budgeted Credit Month Cash Sales Credit Sales Purchases Purchases December 3,000 21,000 January 9,000 23,000 February 11,005 25,000 March 77,800 12,000 12,000 22,000 April 68,500 12,500 12,000 23,500 May 72,000 12,300 13,000 24,500 Wages & other operating expenses are estimated as follows: Month Wages Other Expenses March 20,000 28,000 April 17,500 22,000 May 20,000 23,000 . New equipment purchased in February for $16,750 is to be paid for in April. . New furniture purchased in March for $15,000 is to be paid for in May. Cash at Bank balance (opening bank balance) at 1st March was $18,000. MacBook Air 30 Q K E3 F6 F8 F9 F10 F11 # Ef % A X 5 6 8 9 O W m R Y U O Pengage.cordonbleu.edu M https:/. M March 20,000 28,000 April 17,500 22,000 May 20,000 23,000 New equipment purchased in February for $16,750 is to be paid for in April. . New furniture purchased in March for $15,000 is to be paid for in May. . Cash at Bank balance (opening bank balance) at 1st March was $18,000. Credit Sales The guest house has the following payment terms: 30 days end of month (EOM), a discount of 2.0% is offered to encourage debtors to pay promptly. However, analysis of the payment history of accounts receivable reveals the following: . 75% of credit sales are paid in the month following sale (the 2% discount is applied to these payments 15% of credit sales are paid in the month following the first payment . 5% of credit sales are paid in the third month following the sale Bad debts consistently account for 5% of credit sales 2 | Page Le Cordon Bleu MacBook Air A DII F9 F10 20 F6 F7 F8 4 F3 & EA @ O CO OO W #engage.cordonbleu.edu C M https:/.. M Credit Purchases The guest house has negotiated with many of the suppliers for a 1.7% discount when payment is made in the month following the credit purchase. Analysis of the payment history of accounts payable reveals the following: . 85% of credit purchases are paid in the month following the purchase (the 1.7% discount is applied to these payments) The balance is paid in the month following the first payment Statement of Estimated Receipts of Accounts Receivable Payment Pattern 1 Month 1 2 Months 3 Months Receipts % Discount % Net Receipts % Timing of Cash Inflow Credit Sales March April May December January February March April May Totals MacBook Air A 114 F11 F9 F10 SO =6 F7 E 8 4 F3 & EA % O CO # OO 4D engage.cordonbleu.edu C O M https:/.. M Le Cordon Bleu 3 | Page ACCT201 Hospitality Financial Management Statement of Estimated Payment of Accounts Payable Payment Pattern 1 Month 2 Months 3 Months Receipts % Discount % Net Receipts % Timing of Cash Outflow Credit Purchases March April May January February March April May Totals Using the information provided undertake the following tasks: 1. Complete a Statement of Estimated Receipts of Accounts Receivable using the template provided. (4 marks) 2. Complete a Statement of Estimated Payments of Accounts Payable using the template provided 4 marks) 3. Prepare a Cash Budget for the period March through May including Totals. (8 marks) 4. Why is it important for a business to prepare a cash budget? What are the implications for a business of a cash deficit? How might a business respond to budgeted cash deficits? Suggested (3 marks) word count: 150 words. MacBook Air K F9 F10 Q F8 E2 F3 V & O # 8