Question
Required: Step by Step solution to the question below. Question Francis and Company has planned a cash budget for the third quarter of 2004. The
Required:
Step by Step solution to the question below.
Question
Francis and Company has planned a cash budget for the third quarter of 2004. The cash balance on July 1, 2004 is expected to be an overdraft of $82,000.
Extracts from the sales and purchases budgets are as follows:
Month
Budgeted Sales
Budgeted Purchases
May
$800,000
June
$900,000
$600,000
July
$750,000
$550,000
August
$650,000
$450,000
September
$800,000
$500,000
i) All sales are on credit and an analysis of the records shows that debtors settle according to the following pattern, in accordance with the credit terms 5/30, n90:
50% in the month of sale
30% in the month following sale
20% the following month
ii) All purchases are on credit and past experience shows that 80% are settled in the month of purchase in order to take advantage of a 10% prompt settlement discount. The balance will be disbursed in the month after purchase.
The credit terms of the suppliers - 10/30, n60.
iii) Wages and salaries are expected to be $1,800,000 per annum and are paid monthly.
iv) Fixed operating expenses, which accrue evenly throughout the year, are estimated to be $2,400,000 per annum, (including depreciation on fixed assets of $60,000 per month) and is settled monthly.
v) Taxation of $80,000 has to be settled in August.
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