Problem: Cash Budget - Splash Inc.
Splash Inc., a distributor of fashion items, normally collects its receivables 50% in month of sale,30% the subsequent month and 18% in the third month. Historically, 2% is not collected (is a bad debt). Splash Inc. attempts to match its payments of payables closely to its receivables and pays for its purchases 40% in the month of purchase, 25% in the next month, and 35% in thethird month. Sales during February, March and April were $150,000, $193,000 and $162,000respectively. Purchases during these three months were $196,000, $178,000 and $225,000 for February, March and April. The company pays income tax instalments of $4,000 each month.Assuming the beginning balance of cash as at February 1 is $39,800, and the company wishes tomaintain a cash balance of $30,000, prepare a cash budget for February, March and April. SplashInc. has a line of credit available at a rate of 10%. Interest is paid when the loan is repaid.December and January sales were $240,000 and $182,000 respectively. December and January purchases were $210,000 and $180,000 respectively.
Required:
1. Prepare a cash budget for February, March and April