During the last week of August, Apache Arts Company’s owner approaches the bank for an $80,000 loan to be made on September 2 and repaid on November 30 with annual interest of 12%, for an interest cost of $2,400. 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 Apache Arts' ability to repay the loan and asks the owner to forecast the store's November 30 cash position. On September 1, Apache Arts is expected to have a $3,000 cash balance, $135,000 of accounts receivable, and $100,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow: Budgeted Figures Sales September $220,000 210,000 October $300,000 180,000 November $380,000 220,000 Mdse purchases Cash disbursements: Payroll Rent Other cash expenses Repayment of loan Payment of interest 16,000 6,000 64,000 17,000 6,000 8,000 18,000 6,000 7,000 80,000 2,400 *Operations began in August; August sales were $180,000 and purchases were $100,000. The budgeted September merchandise purchases include the inventory increase. All sales are on account. Company experience is that 25% of credit sales are collected in the month of the sale, 45% in the month following the sale, 20% in the second month, 9% in the third, and the remainder is uncollectible. All merchandise is purchased on credit: 80% of the balance is paid the month following a purchase, and the remaining 20% is paid in the second month. For example, of the $100,000 August purchases, $80,000 will be paid in September and $20,000 in October. Required: Prepare the cash budget for September, October, and November for Apache Arts Company. Show supporting calculations as needed.
During the last week of August, Apache Arts Company’s owner approaches the bank for an $80,000 loan to be made on September 2 and repaid on November 30 with annual interest of 12%, for an interest cost of $2,400. 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 Apache Arts' ability to repay the loan and asks the owner to forecast the store's November 30 cash position. On September 1, Apache Arts is expected to have a $3,000 cash balance, $135,000 of accounts receivable, and $100,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow: Budgeted Figures Sales September $220,000 210,000 October $300,000 180,000 November $380,000 220,000 Mdse purchases Cash disbursements: Payroll Rent Other cash expenses Repayment of loan Payment of interest 16,000 6,000 64,000 17,000 6,000 8,000 18,000 6,000 7,000 80,000 2,400 *Operations began in August; August sales were $180,000 and purchases were $100,000. The budgeted September merchandise purchases include the inventory increase. All sales are on account. Company experience is that 25% of credit sales are collected in the month of the sale, 45% in the month following the sale, 20% in the second month, 9% in the third, and the remainder is uncollectible. All merchandise is purchased on credit: 80% of the balance is paid the month following a purchase, and the remaining 20% is paid in the second month. For example, of the $100,000 August purchases, $80,000 will be paid in September and $20,000 in October. Required: Prepare the cash budget for September, October, and November for Apache Arts Company. Show supporting calculations as needed.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:During the last week of August, Apache Arts Company's owner approached the bank for an $80,000 loan to be made on September 2 and repaid on November 30 with an annual interest of 12%, for an interest cost of $2,400. 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 Apache Arts' ability to repay the loan and asks the owner to forecast the store’s November 30 cash position. On September 1, Apache Arts is expected to have a $3,000 cash balance, $135,000 of accounts receivable, and $100,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow:
**Budgeted Figures:**
| | September | October | November |
|------------------|-----------|---------|----------|
| Sales | $220,000 | $300,000| $380,000 |
| Mdse purchases | $210,000 | $180,000| $220,000 |
| Cash disbursements: | | | |
| Payroll | 16,000 | 17,000 | 18,000 |
| Rent | 6,000 | 6,000 | 6,000 |
| Other cash expenses | 64,000 | 8,000 | 7,000 |
| Repayment of loan| | | 80,000 |
| Payment of interest| | | 2,400 |
*Operations began in August; August sales were $180,000 and purchases were $100,000.*
The budgeted September merchandise purchases include the inventory increase. All sales are on account. Company experience is that 25% of credit sales are collected in the month of the sale, 45% in the month following the sale, 20% in the second month, 9% in the third, and the remainder is uncollectible. All merchandise is purchased on credit: 80% of the balance is paid the month following a purchase, and the remaining 20% is paid in the second month. For example, of the $100,000 August purchases, $80,000 will be paid in September and $20,000 in October
Transcribed Image Text:# Educational Resource: Cash Budget Preparation
## Steps for Preparing a Cash Budget
### Step 1: Cash Collection Schedule
1. **Sketch a Chart**: Outline the percentage of sales collected each month.
2. **Cash vs. Credit**: Enter and analyze cash sales amounts.
3. **Apply Collection Percentage**: Apply the collection percentage to the respective credit sales to determine cash inflows.
### Step 2: Cash Disbursement Schedule
1. **Sketch a Chart**: Outline the percentage of payments made each month.
2. **Calculate Payments**: Determine the amounts paid out each month.
### Step 3: Formal Cash Budget
1. **Cash Collection Totals**: Enter total cash collections.
2. **Other Cash Sources**: Include any other cash amounts collected.
3. **Disbursement Totals**: Enter totals from the cash disbursement schedule.
4. **Beginning Cash Balance**: Input the initial cash balance at the start of the period.
5. **Ending Cash Balance**: Compute the closing cash balance after accounting for collections and disbursements.
## Handout Example
### Cash Receipts Budget (Schedule 1)
| Month | Receipts |
|-------------|---------------|
| August | (180,000) |
| September | (220,000) |
| October | (300,000) |
| November | (380,000) |
### Explanation
The provided example is a table showing cash receipts for the months of August to November. The numbers in parentheses represent negative cash flows, indicating amounts to be collected during those respective months. This data aids in planning for cash needs and assessing financial health during different periods.
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