Problem - On July 1, Five Corners Wholesalers had a cash balance of $145,000 and accounts payable of $77,000. Actual sales for May and June, and budgeted sales for July, August, September and October are:
Month Sales
May $120,000
June $140,000
July $80,000
August $60,000
September $80,000
October $100,000
All sales are on credit with 75 percent collected during the month of sale, 20 percent collected during the next month, and 5 percent collected during the second month following the month of sale. Cost of good sold averages 70 percent of sales revenue. Ending inventory is one-half of the next month's predicted cost of sales. The other half of the merchandise is acquired during the month of sale. All purchases are paid for in the month after purchase. Operating costs are estimated at $20,000 each month and are paid during the month incurred.
Prepare purchases and cash budgets for July, August and September.