The management accountant at Exquisite Creations Company, William Marston is in the process of preparing the cash budget for the business for the fourth quarter of 2017. The company usually has to borrow money during this quarter. Extracts from the sales and purchases budgets are as follows:

Month

Cash Sales Sales on Account Purchases on Account

August $70,000 $640,000 $420,000 September $55,000 $550,000 $550,000 October $50,000 $600,000 $500,000 November $45,000 $800,000 $600,000 December $60,000 $600,000 $400,000

1. An analysis of the records shows that trade receivables (accounts receivable) are settled according to the following credit pattern, in accordance with the credit terms 5/30, n90:

50% in the month of sale 40% in the first month following the sale 10% in the second month following the sale

2. Accounts payable are settled as follows, in accordance with the credit terms 10/30, n60:

70% in the month in which the inventory is purchased 30% in the following month

3. Fixed operating expenses which accrue evenly throughout the year, are estimated to be $1,560,000 per annum, (including depreciation on non-current assets of $40,000 per month) and is settled monthly

4. Wages and salaries are expected to be $2,160,000 per annum and will be paid monthly

5. Other operating expenses are expected to be $96,000 per quarter and will be settled

6. Taxation of $85,000 has to be settled in December

7. In the month of November, an old motor vehicle, with net book value of $70,000, will be monthly sold for cash to an employee at a gain of $40,000. The employee will be allowed to pay a deposit equal to 65% of the selling price in November and the balance settled in two equal amounts in December 2017 & January of 2018.

8. Computer equipment, which is estimated to cost $125,500, will be acquired for cash in November

9. The management of Exquisite Creations has negotiated with a tenant to rent office space to her beginning November 1. The rental is $600,000 per annum. The first month's rent along with one month's safety deposit is expected to be collected on November 1. Thereafter, monthly rental income becomes due at the beginning of each month.

10. A money market instrument purchased by the company with a face value of $250,000 will mature on October 1, 2017. In order to meet the financial obligations of the business, management has decided to liquidate the investment upon maturity. On that date quarterly interest computed at a rate of 20% per annum is also expected to be collected.

11. The cash balance at September 30, 2017 is expected to be an overdraft of $120,000.

Required:

1. Prepare a schedule of budgeted cash collections for sales on account for each of the months October to December.

2. Prepare a schedule of expected cash disbursements for purchases for each of the months October to December.

3. Prepare a cash budget, with a total column, for the quarter ending December 31, 2017, showing the expected cash receipts and payments for each month and the ending balance before financing for each month.

4. Companies in the industry in which Exquisite Creations Company operates are required to maintain a minimum cash balance of $50,000 each month. Based on the budget prepared, will the business be meeting this requirement? Suggest four (4) possible steps (other than borrowing) that may taken by Exquisite Creations Company to improve the companys cash flow.