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    Budgeting Cash Collections

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    I sell a product which I purchased for $20 for $30. Budgeted sales in total dollars for next year are $720,000. The sales information are the follow:
    Month Sales Revenue
    May $30,000
    June $42,000
    July $48,000
    August $60,000

    My account balances at July 1 include:

    Cash $15,000
    Merchandise Inventory $16,000
    Accounts Receivable (sales) $23,000
    Accounts Payable (purchases) $15,000

    The company pays for one-half of its purchases in the month of purchase and the remainder in the following month. End-of-month inventory must be 50 percent of the budgeted sales in units for the next month.

    A 2 percent cash discount on sales is allowed if payment is made during the month of sale. Experience indicates that 50 percent of the billings will be collected during the month of sale, 40 percent in the following month, 8 percent in the next following month, and 2 percent will be uncollectible.

    Total budgeted selling and administrative expenses (excluding bad debts) for the fiscal year are estimated at $186,000, of which half is fixed expenses (inclusive of a $20,000 annual depreciation charge). Fixed expenses are incurred evenly during the year. Expenses are paid during the month incurred.

    How can I prepare a schedule of estimated cash collections for July and for the estimated July cash payments for purchases. Also, I would like to prepare schedules of all July selling and administrative expenses and of those requiring cash payments as also a cash budget for July.

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    Solution Summary

    Instructions for preparing schedules of estimated cash collections and administrative expenses are provided.