Project 3—Cash budgets and budgeted financial statements (Chapters 4 and 5) Ques
ID: 2525479 • Letter: P
Question
Project 3—Cash budgets and budgeted financial statements (Chapters 4 and 5)
Question 1
P. Tiro provides you with the following figures:
March actual sales $42,000
April budgeted sales 39,000
May budgeted sales 36,000
June budgeted sales 25,200
Sales are expected to be 70% credit and 30% cash and include GST. Invoices for credit sales are issued at the end of the month.
Accounts receivable pay:
70% within 30 days of invoice receiving 5% discount. Discount is recognized in the month it is allowed.
20% within 60 days
5% within 90 days.
5% bad debts.
Accounts receivable balances as at 31 March are $47,400. The ageing list shows that this balance is dissected as follows:
Month of sales $
January 3,600
February 14,400
March 29,400
Purchases (GST inclusive) are paid for in the month in which they are made. Budgeted purchases are:
April $24,000
May 22,800
June 12,000
Marketing expenses (GST inclusive) are budgeted at 10% of sales and are paid in the month they are incurred.
Other expenses are expected to be:
April $9,000
May 7,200
June 10,800
Other expenses are paid in the same month they are incurred and include GST except for depreciation. Depreciation is included in other expenses and is $3,000 per month
Equipment will be paid for on 15 June for $30,000 (including GST)
GST is accounted for by the cash method
Cash balance at 31 March is $48,000
Required
Prepare a cash budget for April, May, and June showing monthly figures.
Explanation / Answer
Note: The rate of 66.5% has been used for collection in the first 30 days to factor in for te 5% discount, as follows:-
Percentage of collectio withing first 30 days = 70
Discount on collection within first 30 days = 5%
Effective cash receipt rate = 70 * (1 - 0.05) = 66.5%
Particulars April May June Opening Balance 48000 48411 53366 Inflows from Cash Sales 11700 10800 7560 Account receivables of January (70% of 3600 multiplied by 5%) 180 0 0 February (70% of 14400 multiplied by 20% and 5% respectively) 2880 720 0 March (70% of 29400 multiplied by 66.5%, 20% and 5% respectively) 19551 5880 1470 April (70% of 39000 multiplied by 66.5% and 20% repectively) 0 18155 5460 May (70% of 36000 multiplied by 66.5%) 0 0 23940 Sub-total 82311 83966 91796 Outflows from Purchases (24000) (22800) (12000) Marketing expenses (10% of monthly sales) (3900) (3600) (2520) Other expenses (excluding depreciation of 3000 per month) (6000) (4200) (7800) Payment for equipment 0 0 (30000) Closing Balance 48411 53366 39476Related Questions
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