Exercise 7-14 Sheridan Company expects to have a cash balance of $57,950 on Janu

Question

Exercise 7-14

Sheridan Company expects to have a cash balance of $57,950 on January 1, 2017. These are the relevant monthly budget data for the first two months of 2017.

Prepare a cash budget for January and February.

January

February

1. Collections from customers: January $82,950, February $157,950. 2. Payments to suppliers: January $51,950, February $86,950. 3. Wages: January $31,790, February $41,790. Wages are paid in the month they are incurred. 4. Administrative expenses: January $22,790, February $25,790. These costs include depreciation of $1,000 per month. All other costs are paid as incurred. 5. Selling expenses: January $16,790, February $21,790. These costs are exclusive of depreciation. They are paid as incurred. 6. Sales of short-term investments in January are expected to realize $13,790 in cash. Sheridan Company has a line of credit at a local bank that enables it to borrow up to $25,000. The company wants to maintain a minimum monthly cash balance of $31,950.

Explanation / Answer

PREPARE CASH BUDGET :

JANUARY FEBRUARY Beginning cash balance 57950 32370 Add: Cash receipts Cash collection from customer 82950 157950 Sale of short term investment 13790 Total cash available 154690 190320 Less: Expenses Cash payment for purchase 51950 86950 Wages paid 31790 41790 Administrative exp paid 21790 24790 Selling expenses 16790 21790 Total cash payment 122320 175320 Excess or deficiency cash receipt over disbursement 32370 15000 Borrowing(repayment) 16950 Ending balance 32370 31950

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