Sara is considering whether to open a gadgets shop. She provided you, as a consultant, the following information on June 30, 2016: Sales of $30,000 and $36,000 are expected for July and August, respectively. All goods are sold on account.

The collection pattern for Accounts Receivable is 80 percent in the month of sale and 20 percent in the month following the sale. Purchases of $20,000 and $27,000 are expected for July and August.

The payment pattern for purchases is 70 percent in the month of purchase, 30 percent in the month following the purchase. Other monthly expenses are $4,000, which includes $800 of depreciation. All operating expenses are paid in the month of their incurrence.

$2,000 of cash is available on August 1, 2016.

A loan of $6,000 is to be paid on August 20, 2016.

Required: 1. Prepare the cash collection budget for the two months ending August 31, 2016. 2. Prepare the cash budget for the two months ending August 31,2016. 3. Explain why budgeted cash flow differs from budgeted net income.