Example 2: Cash Budget: Assuming the same details as in the purchases budget problem above, prepare a cash budget for the month of February given the following information: The company pays for 50% of all purchases in the month of purchase and 50% in the following month. Purchases for the month of January were $208,000. All sales are on account. The Company has historically collected 40% in the month of sale and 55% in the following month. Five percent of all credit sales are normally uncollectible. The cash balance on February 1 was $20,000. The Company borrowed $50,000 on February 2 from the bank and paid interest of $500 to the bank in February. Out-of-pocket selling and administrative costs of $15,000 were paid in February. Also, furniture costing $5,000 was purchased with cash. No other transactions affecting cash occurred in February.

Example 2: Cash Budget: Assuming the same details as in the purchases budget problem above, prepare a cash budget for the month of February given the following information: The company pays for 50% of all purchases in the month of purchase and 50% in the following month. Purchases for the month of January were $208,000. All sales are on account. The Company has historically collected 40% in the month of sale and 55% in the following month. Five percent of all credit sales are normally uncollectible. The cash balance on February 1 was $20,000. The Company borrowed $50,000 on February 2 from the bank and paid interest of $500 to the bank in February. Out-of-pocket selling and administrative costs of $15,000 were paid in February. Also, furniture costing $5,000 was purchased with cash. No other transactions affecting cash occurred in February.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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