Sweeney Co. is preparing a cash budget for the second quarter of the coming year
ID: 2456808 • Letter: S
Question
Sweeney Co. is preparing a cash budget for the second quarter of the coming year. The following data have been forecasted: ADDITION AL DATA: Sales are 40% cash and 60% credit. The collection pattern for credit sales is 50% in the month following the sale and 50% in the month thereafter. Total sales in March were $125,000. Purchases are all on credit, with 40% paid in the month of purchase and the balance paid in the following month. Operating expenses are paid in the month they are incurred. A minimum cash balance of $40,000 is required at the end of each month. Loans are used to maintain the minimum cash balance. At the end of each month, interest of 1% per month is paid on the outstanding loan balance as of the beginning of the month. Repayments are made whenever excess cash is available. Prepare the company's cash budget for May. Show the ending loan balance at May 31.Explanation / Answer
Cash Budget for May
Beginning Cash Balance
$ 40,000
Add: Budgeted Collection
$ 124,500
Less: Budgeted Payment for Purchases
$ (109,160)
Less: Budgeted Payment for Operating expenses
Payroll
$ (14,280)
Advertising
$ (5,700)
Rent
$ (1,500)
Net cash Available (A)
$ 33,860
Borrowings:
Loan beginning balance
$ 16,000
Loan Taken (40000-33860)+160
$ 6,300
Loan repaid
$ -
Interest Paid (16000*1%)
$ (160)
Net borrowings (B)
$ 6,140
Cash Ending balance (A+B)
$ 40,000
Workings:
Budgeted Collection:
April
May
Total Sales
$ 150,000
$ 157,500
Cash Sales (40%)
$ 60,000
$ 63,000
Credit Sales (60%)
$ 90,000
$ 94,500
Collection :
Cash Sales
$ 60,000
$ 63,000
Credit Sales :
50% in the month of sale
$ 30,000
$ 31,500
(60000*50%)
(63000*50%)
50% in the next month
$ 30,000
(60000*50%)
Total Collection
$ 124,500
Budgeted Payment for Purchases :
April
May
Merchandise Purchases
$ 107,000
$ 112,400
Payment:
40% in the month of purchase
$ 42,800
$ 44,960
(107000*40%)
(112400*40%)
60% in the next month
$ 64,200
(107000*60%)
Budgeted Payment for Purchases=
$ 109,160
Cash Budget for May
Beginning Cash Balance
$ 40,000
Add: Budgeted Collection
$ 124,500
Less: Budgeted Payment for Purchases
$ (109,160)
Less: Budgeted Payment for Operating expenses
Payroll
$ (14,280)
Advertising
$ (5,700)
Rent
$ (1,500)
Net cash Available (A)
$ 33,860
Borrowings:
Loan beginning balance
$ 16,000
Loan Taken (40000-33860)+160
$ 6,300
Loan repaid
$ -
Interest Paid (16000*1%)
$ (160)
Net borrowings (B)
$ 6,140
Cash Ending balance (A+B)
$ 40,000
Workings:
Budgeted Collection:
April
May
Total Sales
$ 150,000
$ 157,500
Cash Sales (40%)
$ 60,000
$ 63,000
Credit Sales (60%)
$ 90,000
$ 94,500
Collection :
Cash Sales
$ 60,000
$ 63,000
Credit Sales :
50% in the month of sale
$ 30,000
$ 31,500
(60000*50%)
(63000*50%)
50% in the next month
$ 30,000
(60000*50%)
Total Collection
$ 124,500
Budgeted Payment for Purchases :
April
May
Merchandise Purchases
$ 107,000
$ 112,400
Payment:
40% in the month of purchase
$ 42,800
$ 44,960
(107000*40%)
(112400*40%)
60% in the next month
$ 64,200
(107000*60%)
Budgeted Payment for Purchases=
$ 109,160
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