The Gannon Company has budgeted sales revenues as follows:
- JUNE JULY AUGUST
- Credit sales $27,000 $29,000 $18,000
- Cash sales 18,000 51,000 39,000
- Total sales $45,000 $80,000 $57,000
Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month.
Purchases of inventory are all on credit and 50% is paid in the month of purchase and 50% in the month following purchase. Budgeted inventory purchases are:
- June $60,000
- July 50,000
- August 21,000
Other cash disbursements budgeted: (a) selling and administrative expenses of $9,500 each month, (b) dividends of $22,700 will be paid in July, and (c) purchase of a computer in August for $5,000 cash.
The company MUST maintain a minimum cash balance of $10,000 at the end of each month. The company borrows money from the bank at 9% per year interest if necessary to maintain the minimum cash balance of $10,000. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July 1 was $10,000 of which none is borrowed.
Instructions:
Prepare a cash budget for the months of July and August and Prepare separate schedules for expected collections from customers and expected payments for purchases of inventory.