Liberty Corporation is a new company which started operations on January 1, 2013

Question

Liberty Corporation is a new company which started operations                   
on January 1, 2013.                   
                   
The following information is available for budgeting purposes.                   
                   
Sales Budget                   
    January    February    March       
Cash sales    $3,000    $8,000    $6,000       
Credit sales    $97,000    $81,000    $75,000       
Total sales    $100,000    $89,000    $81,000       
                   
Purchases                   
    January    February    March       
    $45,000    $40,050    $36,450       
                   
    January    February    March       
Operating expenses                   
Salaries    $7,000    $6,000    $6,500       
Rent    $8,000    $8,000    $8,000       
General expenses    $9,500    $8,500    $8,800       
Administrative expenses    $12,000    $10,000    $11,000       
Selling expenses    $10,000    $10,000    $10,000       
                   
                   
                   
Collection pattern                   
40% of credit sales are collected in the month of sale and the remining 60% is                   
collected the following month. There are no bad debts.                   
                   
Merchandise purchases payment pattern                   
Purchases are paid as follows:                   
30% is paid in the month of purchase                   
25% is paid on month following the month of purchase                   
45% is paid two months following the month of purchase                   
                   
Operating payment pattern                   
Salaries    Paid in the same month incurred               
Rent    Paid in the same month incurred               
General expenses    70% paid in month incurred 30% next month               
Administrative expenses    Paid in total in the month following month incurred               
Selling expenses    Paid in month incurred               
                   
                   
Required:                   
Prepare a cash budget for the month of March. Include any schedules                   
you need to prepare for the forecast. Show your work for partial credit.                   
Assume there is a beginning balance of cash on March 1st of $20,000.                   
                   

Explanation / Answer

Hi,

Please find the answer as follows:

Thanks.

Items March Opening Balance of Cash 20000 Cash Sales 6000 Credit Sales Collected in March 78600 Total Cash Available 104600 Less Payments
Merchandise Purchases 41197.5 Salaries 6500 Rent 8000 General Expenses 8710 Administrative expenses 10000 Selling Expenses 10000 Total Cash Disbursements 84407.5 Ending Cash Balance 20192.5

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