Question - 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 $40,000.
b. Actual sales for October and November and expected sales for December are as follows
October November December
Cash sales $ 65,000.00 $ 70,000.00 $ 83,000.00
Sales on account $ 400,000.00 $ 525,000.00 $ 600,000.00
Sales on accounts are collected over a three-month period as follows: 20% collected in the month sales, 60% collected in the month following sales, and 18% collected in the second month following sale. The remaining 2% is uncollectible.
c. Purchases of inventory will total $280,000 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 $161,000, all of which will be paid in December.
d. Selling and administrative expenses are budgeted at $430,000 for December. Of this amount, $50,000 is for depreciation.
e. A new web server for the Marketing Department costing $76,000 will be purchased for cash during December, and dividends totaling $9,000 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.