Arnie's Landscaping Company is preparing its budget for the first quarter of 2012. The next step in the budgeting process is to prepare a cash receipts schedule and a cash payments schedule. To that end the following information has been collected.
Clients usually pay 60% of their fee in the month that service is provided, 30% the month after, and 10% the second month after receiving service.
Actual service revenue for 2011 and expected service revenues for 2012 are: November 2011, $120,000; December 2011, $110,000; January 2012, $130,000; February 2012, $160,000; March 2012, $170,000.
Purchases on landscaping supplies (direct materials) are paid 40% in the month of purchase and 60% the following month. Actual purchases for 2011 and expected purchases for 2012 are: December 2011, $21,000; January 2012, $18,000; February 2012, $22,000; March 2012, $27,000.
Instructions
(a) Prepare the following schedules for each month in the first quarter of 2012 and for the quarter in total:
(1) Expected collections from clients.
(2) Expected payments for landscaping supplies.
(b) Determine the following balances at March 31, 2012:
(1) Accounts receivable.
(2) Accounts payable