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    Cash Receipts & Cash Budget

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    2. The Merry Christmas Gift Shoppe has forecast its sales revenues and purchases for the last 5 months of 2008 to be as follows:

    Sales Purchases
    August $22,000 $17,000
    September 15,000 19,500
    October 25,000 29,000
    November 30,000 20,000
    December 26,000 24,000

    60% of sales are on credit. On the basis of past experience, 50% of the accounts receivable are collected the month after the sale and the remainder are collected 2 months after the sale. Purchases are paid 30 days after they are incurred. The firm has a cash balance of $5,000 on hand as of October 31, and its minimum required cash balance is $4,000.

    a. Prepare a schedule of cash receipts for October, November and December.
    b. Prepare a cash budget for the same period.

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    Solution Preview

    a. Schedule of cash collections
    August September October November December
    Sales 22000 15,000 25000 30000 26000
    Cash Sales (40%) 8,800 6,000 10,000 12,000 10,400
    Sales on Account (60%) 13,200 9,000 15,000 18,000 15,600
    Collection of Accounts Receivable 50% in next month and 50% in second ...

    Solution Summary

    The solution explains how to determine the cash and receipts and prepare a cash budget