Question: Cash Budget The owner of a small mining supply company has requested a cash budget for June. After examining the records of the company, you find the following:
a. Cash balance on June 1 is $1,230.
b. Actual sales for April and May are as follows:
April May
Cash sales $10,000 $18,000
Credit sales 28,900 35,000
Total sales $38,900 $53,000
c. Credit sales are collected over a three-month period: 40 percent in the month of sale, 35 percent in the second month, and 20 percent in the third month. The sales collected in the third month are subject to a 2 percent late fee, which is paid by those customers in addition to what they owe. The remaining sales are uncollectible.
d. Inventory purchases average 65 percent of a month's total sales. Of those purchases, 20 percent are paid for in the month of purchase. The remaining 80 percent are paid for in the following month.
e. Salaries and wages total $12,500 per month, including a $4,500 salary paid to the owner.
f. Rent is $4,340 per month.
g. Taxes to be paid in June are $6,780. The owner also tells you that he expects cash sales of $19,500 and credit sales of $52,000 for June. No minimum cash balance is required. The owner of the company doesn't have access to short-term loans.
Required: 1. Prepare a cash budget for June. Include supporting schedules for cash collections and cash payments.
2. Conceptual Connection: Did the business show a negative cash balance for June? Suppose that the owner has no hope of establishing a line of credit for the business, what recommendations would you give the owner for dealing with a negative cash balance?