Explore BrainMass

Cash Management: Cash Collection and Ending Cash Balance

A. Big Bob's Discount Appliances expects sales of $5,000, $5,000, and $10,000 during April, May, and June (big sale in June). To build business, Big Bob lets all customers buy on credit, and all do so. In the past, 50% of Big Bob's sales have been collected during the month of sale, 40% are collected the following month, and 10% the month after that. If this trend continues, what will be Big Bob's total cash collections in the month of June?

b. Charley's South Shore Crab House expects to have $100 in cash on hand at the beginning of May, and the company's target cash balance is $100. Net cash flow for May is minus $300. Assuming that Charley borrows to meet short term cash needs and pays back as soon as surplus cash is available, what will the company's ending cash balance after financing be at the end of May? (Note: no loans are outstanding at the beginning of May).

Solution Preview

a. In June, Bob would collect - 50% of June sales+40% of May sales and 10% of April sales
Total cash collection in June = ...

Solution Summary

The solution explains how to calculate the cash collection and the ending cash balance.