You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations:
a. The cash balance on December 1 is $58,600.
b. Actual sales for October and November and expected sales for December are as follows:
October November December Cash sales $ 73,200 $ 78,000 $ 92,000
Sales on account 485,000 568,000 663,000
Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible.
c. Purchases of inventory will total $316,000 for December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $162,000, all of which will be paid in December.
d. Selling and administrative expenses are budgeted at $514,000 for December. Of this amount, $52,000 is for depreciation.
e. A new web server for the Marketing Department costing $117,500 will be purchased for cash during December, and dividends totaling $12,500 will be paid during the month.
f. The company maintains a minimum cash balance of $20,000.
An open line of credit is available from the company’s bank to bolster the cash position as needed.
Required: 1. Prepare a schedule of expected cash collections for December.
2. Prepare a schedule of expected cash disbursements for merchandise purchases for December.
3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month.