Question: The Merry Christmas Gift Shoppe has forecast its sales revenues and purchases for the last 5 months of 2008 to be as follows:
Sales Purchases
August $22,000 $17,000
September 15,000 19,500
October 25,000 29,000
November 30,000 20,000
December 26,000 24,000
60% of sales are on credit. On the basis of past experience, 50% of the accounts receivable are collected the month after the sale and the remainder are collected 2 months after the sale. Purchases are paid 30 days after they are incurred. The firm has a cash balance of $5,000 on hand as of October 31, and its minimum required cash balance is $4,000.
a. Prepare a schedule of cash receipts for October, November and December.
b. Prepare a cash budget for the same period.