The owner of a building supply company has requested a cash budget for June. After examining the records of the company, you find the following:

a. Cash balance on 1 June is $736.

b. Actual sales for April and May are as follows:

April

May

June

Cash sales

$10,000

$18,000

$18,600

Credit sales

28,900

35,000

54,000

Total sales

$38,900

$53,000

$72,600

c. Credit sales are collected over a three-month period: 40 per cent in the month of sale, 30 per cent in the second month and 20 per cent in the third month. The remaining sales are uncollectable.

d. Inventory purchases average 64 per cent of a month's total sales. Of those purchases, 20 per cent are paid for in the month of purchase. The remaining 80 per cent are paid for in the following month.

e. Salaries and wages total $11,750 per month, including a $4,500 salary paid to the owner.

f. Rent is $4,100 per month.

g. Taxes to be paid in June are $6,780.

h.No minimum cash balance is required. The owner of the company doesn't have access to short-term loans.

Required:

i. Prepare schedules for cash collections and cash payments for the month of May and June.

i.Prepare a cash budget for the months of June.

ii.Did the business show a negative cash balance for June? What recommendations would you give the owner for dealing with a negative cash balance?

(10 + 8 + 2 = 20 marks)

ANSWER:

Complete the following tables with numbers to answer case 1.

SCHEDULE OF CASH COLLECTIONS

Monthly sales

Monthly cash collections

April

May

June

April

May

June

Cash Sales

Credit sales

Total

SCHEDULE OF CASH PAYMENTS FOR PURCHASE

Monthly purchases

Monthly Cash payments

April

May

June

April

May

June

Total

CASH BUDGET FOR JUNE

Description

Amount

Amount

Beginning cash balance

Cash collections

Total cash available

Payments:

Total cash needs:

Excess of Cash available over cash needs