Herbal Care Corp., a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales occur. The company has requested a $40,000, 90-day loan from its bank to help meet cash requirements during the quarter. Since Herbal Care has experienced difficulty in paying off its loans in the past, the loan officer at the bank has asked the company to prepare a cash budget for the quarter. In response to this request, the following data have been assembled:

a.	On July 1, the beginning of the third quarter, the company will have a cash balance of $43,500.

b.

Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account):

May (actual)

$

210,000

June (actual)

$

250,000

July (budgeted)

$

370,000

August (budgeted)

$

590,000

September (budgeted)

$

305,000

Past experience shows that 25% of a months sales are collected in the month of sale, 70% in the month following sale, and 3% in the second month following sale. The remainder is uncollectible.

c.

Budgeted merchandise purchases and budgeted expenses for the third quarter are given below:

July

August

September

Merchandise purchases

$

222,000

$

354,000

$

183,000

Salaries and wages

$

38,500

$

45,000

$

46,000

Advertising

$

135,000

$

117,500

$

86,000

Rent payments

$

6,000

$

6,000

$

6,000

Depreciation

$

6,250

$

6,250

$

6,250

	Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30, which will be paid during July, total $150,000.
d.	Equipment costing $10,000 will be purchased for cash during July.
e.	In preparing the cash budget, assume that the $40,000 loan will be made in July and repaid in September. Interest on the loan will total $1,200.

Required:

PART1.

Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total.

Herbal Care Corp.
Schedule of Expected Cash Collections
	July	August	September	Quarter
From accounts receivable:
May sales				$0
June sales				0
From budgeted sales:
July sales				0
August sales				0
September sales				0
Total cash collections	$0	$0	$0	$0

PART2.

Prepare a cash budget, by month and in total, for the third quarter. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

Herbal Care Corp.
Cash Budget
	July	August	September	Quarter
Beginning cash balance
Add receipts: Collections from customers
Total cash available	0	0	0	0
Less cash disbursements:
Merchandise purchases
Salaries and wages
Advertising
Rent payments
Equipment purchases
Total cash disbursements	0	0	0	0
Excess (deficiency) of cash available over disbursements	0	0	0	0
Financing:
Borrowings
Repayments
Interest
Total financing	0		0	0
Ending cash balance	$0	$0	$0	$0