Problem: Schedules of Expected Cash Collections and Disbursements;
Cash Budgets
You have been asked to prepare the September cash budget for Calgon Products, a distributor of organic beverages. The following information is available:
a. The cash balance at the beginning of September is $9,000.
b. Actual sales for July and August and expected sales for September are as follows:
July August September
Cash sales $6,500 $5,250 $7,400
Sales on account $20,000 $30,000 $40,000
Sales on account are collected over a three-month period as follows: 10% collected in the month of sale, 70% collected in the month following sale, and 18% collected in the second month following sales. The remaining 2% is uncollectible.
c. Purchases of inventory will total $25,000 for September. Twenty percent of a month's inventory purchases are paid for during the month of purchase. The accounts payable remaining from August's inventory purchases total $16,000, all of which will be paid in September.
d. Selling and administrative expenses are budgeted at $13,000 for September. Of this amount, $4,000 is for depreciation.
e. Equipment costing $18,000 will be purchased for cash during September, and dividends totaling $3,000 will be paid during the month.
f. The company maintains a minimum cash balance of $5,000. An open line of credit is available from the company's bank to bolster the cash position as needed.
Required to do:
1. Prepare a schedule of expected cash collections for September.
2. Prepare a schedule of expected cash disbursements for merchandise inventory purchases in September.
3. Prepare a cash budget for September. Indicate in the financing section any borrowing that will be need during September.