Budgeted sales are: Mh August Sales revenue $15,000 September $13,000 October $20,000 November $16,000 December $11,000 You collect 50% of sales revenue as cash in the month of the sale, 30% in the following month, and 20% two months after the sale. a) Compute budgeted cash inflows for October and November: October = $(No Response) November = $(No Response) Remember to go backwards in time: e.g., 30% of September revenue is collected in the following month (October). This implies that cash inflows for October include b) According to the income statement, a firm is profitable in the current year. Can the firm run out of cash during the year? Ο NO O YES What are some examples of how a firm could run out of cash? (select all that apply) Rapid sales growth: A firm incurs many cash outflows in advance to generate sales (e.g., salaries, payments to suppliers), and it collects cash inflows from sales w increase cash outflows today, but the corresponding cash inflows will increase with a delay of a few months. The firm can run out of cash during this delay. Purchase of new equipment: If a firm buys major new equipment for cash, then it has a large cash outflow in the current year. Current year's income statement do- annual depreciation expense in future income statements during the entire useful life of the equipment). Trick question: by definition, a profitable firm must have higher cash inflows than cash outflows. c) A firm is about to run out of cash. What can it do to mitigate the cash shortage? (select all that apply) encourage customers to pay in cash (e.g., offer a discount for cash payment) postpone equipment purchases repay bank loans early to reduce debt buy new equipment encourage customers to pay their bills early (e.g., offer a discount for early payment) postpone payments to suppliers borrow money
Budgeted sales are: Mh August Sales revenue $15,000 September $13,000 October $20,000 November $16,000 December $11,000 You collect 50% of sales revenue as cash in the month of the sale, 30% in the following month, and 20% two months after the sale. a) Compute budgeted cash inflows for October and November: October = $(No Response) November = $(No Response) Remember to go backwards in time: e.g., 30% of September revenue is collected in the following month (October). This implies that cash inflows for October include b) According to the income statement, a firm is profitable in the current year. Can the firm run out of cash during the year? Ο NO O YES What are some examples of how a firm could run out of cash? (select all that apply) Rapid sales growth: A firm incurs many cash outflows in advance to generate sales (e.g., salaries, payments to suppliers), and it collects cash inflows from sales w increase cash outflows today, but the corresponding cash inflows will increase with a delay of a few months. The firm can run out of cash during this delay. Purchase of new equipment: If a firm buys major new equipment for cash, then it has a large cash outflow in the current year. Current year's income statement do- annual depreciation expense in future income statements during the entire useful life of the equipment). Trick question: by definition, a profitable firm must have higher cash inflows than cash outflows. c) A firm is about to run out of cash. What can it do to mitigate the cash shortage? (select all that apply) encourage customers to pay in cash (e.g., offer a discount for cash payment) postpone equipment purchases repay bank loans early to reduce debt buy new equipment encourage customers to pay their bills early (e.g., offer a discount for early payment) postpone payments to suppliers borrow money
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter8: Budgeting
Section: Chapter Questions
Problem 5PB: Cash budget The controller of Mercury Shoes Inc. instructs you to prepare a monthly cash budget for...
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Transcribed Image Text:Budgeted sales are:
M h
August
September $13,000
October
$20,000
November $16,000
December
$11,000
You collect 50% of sales revenue as cash in the month of the sale, 30% in the following month, and 20% two months after the sale.
Sales revenue
$15,000
a) Compute budgeted cash inflows for October and November:
October = $(No Response)
November = $(No Response)
Remember to go backwards in time: e.g., 30% of September revenue is collected in the following month (October). This implies that cash inflows for October include 3
b) According to the income statement, a firm is profitable in the current year. Can the firm run out of cash during the year?
Ο NO
O YES
What are some examples of how a firm could run out of cash? (select all that apply)
Rapid sales growth: A firm incurs many cash outflows in advance to generate sales (e.g., salaries, payments to suppliers), and it collects cash inflows from sales wi
increase cash outflows today, but the corresponding cash inflows will increase with a delay of a few months. The firm can run out of cash during this delay.
Purchase of new equipment: If a firm buys major new equipment for cash, then it has a large cash outflow in the current year. Current year's income statement doe
annual depreciation expense in future income statements during the entire useful life of the equipment).
Trick question: by definition, a profitable firm must have higher cash inflows than cash outflows.
c) A firm is about to run out of cash. What can it do to mitigate the cash shortage? (select all that apply)
encourage customers to pay in cash (e.g., offer a discount for cash payment)
postpone equipment purchases
repay bank loans early to reduce debt
buy new equipment
encourage customers to pay their bills early (e.g., offer a discount for early payment)
postpone payments to suppliers
borrow money
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