Finnagan company has budgeted sales revenues as follows:

Credit sales May $140,000

June 100,000

July 150,000

August 120,000

Past experience indicates that 80% of the credit sales will be collected in the

month of sale, 15% will be collected in the first month following the sale and

5% in the second month following the sale. Purchases of inventory are all on

credit and 32% is paid in the month of purchase and 68% in the month following

purchase. Budgeted inventory purchases are:

May $100,000

June 90,000

July 80,000

August 60,000

Other cash disbursements budgeted: (a) selling and administrative expenses of

$19,000 each month, (b) dividends of $42,000 will be paid in July, and (c)

purchase of a truck in August for $30,000 cash.

The company wishes to maintain a minimum cash balance of $40,000 at the end of

each month. Borrowed money is repaid in months when there is an excess cash

balance. The beginning cash balance on July 1 was $40,000. If money is borrowed ignore interest

INSTRUCTIONS

a) Prepare separate schedules for (1) expected collections from customers and

(2) expected payments for purchases of inventory.

b) Prepare a cash budget for the months of July and August