During the last week of August, Oneida Company's owner approaches the bank for a $99,000 loan to be made on September 2 and repaid on November 30 with annual interest of 12%, for an interest cost of $2,970. The owner plans to increase the store's inventory by $60,000 during September and needs the loan to pay for inventory acquisitions. The bank's loan officer needs more information about Oneida's ability to repay the loan and asks the owner to forecast the store's November 30 cash position. On September 1, Oneida is expected to have a $4,500 cash balance, $145,300 of accounts receivable, and $100,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow:
Other cash expenses
Repayment of bank loan
Interest on the bank loan
Operations began in August; August sales were $190,000 and purchases were $110,000.
The budgeted September merchandise purchases inlude the inventory increase. All sales are on account. The company predicts that 23% of credit sales are collected in the month of the sale, 47% in the month following the sale, 19% in the second month, 7% in the third, and the remainder is uncollectible.
Applying these percents to the August credit sales for example, shows that $89,300 of the $190,000 will be collected in September, $36,100 in October, and $13,300 in November All merchandise is purchased on credit; 70% of the balance is paid in the month following a purchase, and the remaining 30% is paid in the second month. For example, of the $110,000 August purchases, $77,000 will be paid in September and $33,000 in October.
Prepare a cash budget for September, October, and November for Oneida Company. Show supporting calculations as needed.
See tutorial in Excel showing schedules to figure collections from credit sales, disbursements for inventory purchases and a full cash budget, including loan and repayment with interest.