he management accountant at Miller Merchandising & More, Odail Russell is in the process of preparing the cash budget for the business for the fourth quarter of 2021. It is customary for the business to borrow money during this quarter. Extracts from the sales and purchases budgets are as follows: Month Cash Sales Sales On Account Purchases August September October November December $85,000 $70,000 $88,550 $77,160 $174,870 $640,000 $550,000 $600,000 $800,000 $500,000 $420,000 $550,000 $500,000 $600,000 $450,000 i) An analysis of the records shows that trade receivables are settled according to the following credit pattern, in accordance with the credit terms 4/30, n90: 50% in the month of sale 30% in the first month following the sale 20% in the second month following the sale ii) Expected purchases include monthly cash purchases of 5%. All other purchases are on account. Accounts payable are settled as follow
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
The
|
Month |
Cash Sales |
Sales On Account |
Purchases |
|
August September October November December |
$85,000 $70,000 $88,550 $77,160 $174,870 |
$640,000 $550,000 $600,000 $800,000 $500,000 |
$420,000 $550,000 $500,000 $600,000 $450,000 |
i) An analysis of the records shows that trade receivables are settled according to the following credit pattern, in accordance with the credit terms 4/30, n90:
50% in the month of sale
30% in the first month following the sale
20% in the second month following the sale
ii) Expected purchases include monthly cash purchases of 5%. All other purchases are on account. Accounts payable are settled as follows, in accordance with the credit terms – 2/30, n60:
60% in the month in which the inventory is purchased
40% in the following month
iii) Fixed operating expenses which accrue evenly throughout the year, are estimated to be $1,680,000 per annum, (including
iv) Wages and salaries are expected to be $2,280,000 per annum and will be paid monthly.
v) Other operating expenses are expected to be $108,000 per quarter and will be settled monthly.
vi) In the month of November, an old motor vehicle, which cost $650,000, will be sold to an employee at a gain of $30,000.
vii) Computer equipment, which is estimated to cost $320,000, will be acquired in November. The manager has made arrangements with the dealer to make a cash deposit of 50% of the amount upon signing of the agreement in November, with the balance to be settled in four equal monthly installments, starting in December 2021
viii) The management of Miller Merchandising Company has negotiated with a tenant to rent office space to her beginning November 1. The rental is $624,000 per annum. The first month’s rent along with one month’s safety deposit is expected to be collected on November 1. Thereafter, monthly rental income becomes due at the beginning of each month.
ix)
x) A
xi) The cash balance at December 31, 2021 is expected to be an overdraft of $236,00
Required: Using the template provided
(a)
- (PART A. 1) A schedule of budgeted cash collections for trade receivables (sales on account) for each of
the months October to December. - PART A.3 has been completed but added for reference - (PART A. 2) A schedule of expected cash disbursements for accounts payable (purchases on account)for each of the months October to December.
- (PART A. 3) A cash budget, with a total column, for the quarter ending December 31, 2021, showing the
expected cash receipts and payments for each month and the ending cash balance for each
of the three months, given that no financing activities took place.
(b) Another team member who is preparing the Budgeted
the same quarter and has asked you to furnish him with the figures for the expected trade
receivables and payables to be included in the statement at December 31, 2021. Is that a
reasonable request? If yes, what should these amounts be?
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