Example

At the end of March $2016,$ St$.$ Ann Manufacturing Co$.$ Ltd was in overdraft at the bank to the extent of $$540,000.$ Cash budgeting is critical to the company$$s financial information needs. The following information was extracted from the company$$s records:

$(1)$ The table below provides information on budgeted sales for the periods indicated:

Budgeted Sales

$2016$

$

February

$2,000,000$

March

$1,500,000$

April

$3,000,000$

May

$2,500,000$

June

$2,800,000$

July

$1,900,000$

August

$2,400,000$

September

$2,700,000$

The company$$s records indicated that $70\%$ of the company$$s sales were for cash; and $30\%$ was received two months after sale.

$(2)$ Taxation for the first quarter of $2016$ amounting to $$1,200,000$ was due in the first month of the second quarter.

$(3)$ In March $2016,$ the company bought a motor truck for $$4,000,000.$ The agreement with the supplier was that a down$-$payment of $$2,000,000$ would be made in the last month of the first quarter in $2016$ and the balance paid off in equal amounts during the first two months of the second quarter in $2016.$

$(4)$ The company is to receive insurance claim of $$4,500,000$ for damage done to its warehouse during heavy rains. The amount is to be disbursed as follows: $$2,000,000$ in May $2016$; $$2,000,000$ in June $2016$; and the balance in July $2016.$

$(5)$ Investments held at bank of St$.$ Andrew will mature in June $2016.$ The amount to be collected is expected to be $$3,500,000.$ The company planned to pay dividends to$,$ its shareholders amounting to $$1,000,000$ in May $2016.$ It also, planned to pay $$1,500,000$ in April $2016$ for a plot of land to build a new warehouse.

$(6)$ In May $2016$ the company sold a motor vehicle for $$400,000$ to one of its staff members while $$300,000$ written off as bad debt in $$2015$ was recovered in the first month of the

Second quarter in $2016.$ Rental income amounting to $$1,800,000$ per annum is budgeted for

$2016.$

$(7)$ Operating expenses amounted to $$7,200,000$ is budgeted for $2016.$ Included in this figure is monthly depreciation of $$100,000.$

$(8)$ Salesmen are paid commission based on the amounts collected from sales each month. The amount is $5\%$ of sales collection each month. Miscellaneous expenses amounting to $$120,000$ monthly was not included in the operating expenses budget.

$(9)$ Records from the company$$s books revealed that $60\%$ of purchases are for cash; $20\%$ is paid

for one month later; and the balance one month later. The following table provides information on budgeted purchases for the periods indicated:

Budgeted Purchases

$2016$

$

February

$1,500,000$

March

$1,100,000$

April

$2,000,000$

May

$1,400,000$

June

$1,600,000$

July

$1,000,000$

August

$1,600,000$

September

$1,200,000$

Required:

A cash collection summary from sales showing cash and credit collections separately for the second quarter of $2016.$

A payment summary for purchases showing cash purchases and credit purchases separately for the second quarter of $2016.$

A cash budget for the second quarter of $2016.$ Clearly show amounts for cash sales, credit sales, cash purchases, credit purchases and totals.