Required:(a)The business needs to have a sense of its future cash flows and therefore requires the preparation of the following:A schedule of budgeted cash collections for trade receivables (sales on account) for each of the months July to September.A schedule of expected cash disbursements for accounts payable (purchases on account) for each of the months July to September. A cash budget, with a total column, for the quarter ending September 30, 2022, 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 Balance Sheet for the business for the same quarter ending September 30, 2022, has asked you to furnish him with the figures for the expected trade receivables and payables to be included in the statement. Is that a reasonable request? If yes, what should these amounts be?(c)Upon receipt of the budget, the team manager, Dannie Bruce, has now informed you that, in keeping with industry players, the management of Sallat Household Furnishings have indicated an industry requirement to maintain a minimum cash balance of $155,000 each month. He has also noted that management is very keen on keeping the gearing ratio of the business as low as possible and would therefore prefer to cushion any gaps internally using equity financing. Based on the budget prepared, will the business be achieving this desired industry target? Suggest three (3) internal strategies that may be employed by management to improve the organization’s monthly cash flow and militate against or reduce any possible shortfall reflected in the budget prepared. Each strategy must be fully explained. SALLAT Household Furnishings & Appliances is a family-owned business. You are themanagement accountant of the entity and have been given the task of preparing the cash budgetfor the business for the quarter ending September 30, 2022. Your data collection has yielded thefollowing:i)Extracts from the sales and purchases budgets are as follows:CashSalesCashPurchasesMonthSalesOn AccountPurchasesOn Account$75,000$135,000$86,800$480,000$600,000$720,000$390,000$360,000MayJune$36,000JulyAugustSeptember$105,600$112,500$640,000$800,000$61,700$68,800$77,250$450,000$400,000$500,000An analysis of the records shows that trade receivables (accounts receivable) for sales onaccount are settled according to the following credit pattern, in accordance with the creditterms 5/30, n90:ii)50% in the month of sale35% in the first month following the sale15% in the second month following the saleiii)Accounts Payable are settled as follows, in accordance with the credit terms – 4/30, n60:70% in the month in which the inventory is purchased30% in the following monthiv)manager has planned with the supplier to make a cash deposit of 50% of the amount uponsigning of the agreement in August, with the balance to be settled in four equal monthlyinstalments, starting in September 2022.Computer equipment, which is estimated to cost $350,000, will be acquired in August. TheA treasury bond purchased by the company with a face value of $560,000 is expected tomature on July 20, 2022. To meet the financial obligations of the business the managementteam has decided to liquidate the investment upon maturity. On that date, quarterly interestcomputed at a rate of 7½ % per annum is also expected to be collected.v)vi)Fixed operating expenses, which accrue evenly throughout the year, are estimated to be$1,812,000 per annum [including depreciation on non-current assets of $37,000 per month]and are settled monthly.vii)The management Sallat Household has negotiated with a tenant for rental of storage spacebeginning on July 1. The rental is expected to be $840,000 per annum and will be paid overby the tenant quarterly in advance. Rental relating to the quarter under review becomesdue on July 1.Other operating expenses are expected to be $432,000 per annum and will be settledmonthly.vii)ix)Wages and salaries are expected to be $2,304,000 per annum and will be paid monthly.In the month of August, furniture & fixtures, which cost $455,000, will be sold to anemployee at a loss of $20,000. Accumulated depreciation on the furniture & fixtures at thattime is expected to be $305,000. The employee will be allowed to pay a deposit equal to60% of the selling price in August with the balance settled in two equal amounts inSeptember & October.x)хі)As part of its investing activities, the management of Sallat Household Furnishings &Appliances is in the process of completing a major addition to the business property, whichis estimated to cost $1,200,000, and which is being funded by external borrowing. $420,000of the principal, along with interest of $14,200 is due to be paid on July 15, 2022.xii)The cash balance on September 30, 2022, is expected to be an overdraft of $147,500.

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Answered: Required: (a) The business needs to…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Required:

(a)

The business needs to have a sense of its future cash flows and therefore requires the preparation of the following:

A schedule of budgeted cash collections for trade receivables (sales on account) for each of the months July to September.
A schedule of expected cash disbursements for accounts payable (purchases on account) for each of the months July to September.
A cash budget, with a total column, for the quarter ending September 30, 2022, 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 Balance Sheet for the business for the same quarter ending September 30, 2022, has asked you to furnish him with the figures for the expected trade receivables and payables to be included in the statement. Is that a reasonable request? If yes, what should these amounts be?

(c)

Upon receipt of the budget, the team manager, Dannie Bruce, has now informed you that, in keeping with industry players, the management of Sallat Household Furnishings have indicated an industry requirement to maintain a minimum cash balance of $155,000 each month. He has also noted that management is very keen on keeping the gearing ratio of the business as low as possible and would therefore prefer to cushion any gaps internally using equity financing. Based on the budget prepared, will the business be achieving this desired industry target? Suggest three (3) internal strategies that may be employed by management to improve the organization’s monthly cash flow and militate against or reduce any possible shortfall reflected in the budget prepared. Each strategy must be fully explained.

SALLAT Household Furnishings & Appliances is a family-owned business. You are the
management accountant of the entity and have been given the task of preparing the cash budget
for the business for the quarter ending September 30, 2022. Your data collection has yielded the
following:
i)
Extracts from the sales and purchases budgets are as follows:
Cash
Sales
Cash
Purchases
Month
Sales
On Account
Purchases
On Account
$75,000
$135,000
$86,800
$480,000
$600,000
$720,000
$390,000
$360,000
May
June
$36,000
July
August
September
$105,600
$112,500
$640,000
$800,000
$61,700
$68,800
$77,250
$450,000
$400,000
$500,000
An analysis of the records shows that trade receivables (accounts receivable) for sales on
account are settled according to the following credit pattern, in accordance with the credit
terms 5/30, n90:
ii)
50% in the month of sale
35% in the first month following the sale
15% in the second month following the sale
iii)
Accounts Payable are settled as follows, in accordance with the credit terms – 4/30, n60:
70% in the month in which the inventory is purchased
30% in the following month
iv)
manager has planned with the supplier to make a cash deposit of 50% of the amount upon
signing of the agreement in August, with the balance to be settled in four equal monthly
instalments, starting in September 2022.
Computer equipment, which is estimated to cost $350,000, will be acquired in August. The
A treasury bond purchased by the company with a face value of $560,000 is expected to
mature on July 20, 2022. To meet the financial obligations of the business the management
team has decided to liquidate the investment upon maturity. On that date, quarterly interest
computed at a rate of 7½ % per annum is also expected to be collected.
v)
vi)
Fixed operating expenses, which accrue evenly throughout the year, are estimated to be
$1,812,000 per annum [including depreciation on non-current assets of $37,000 per month]
and are settled monthly.
vii)
The management Sallat Household has negotiated with a tenant for rental of storage space
beginning on July 1. The rental is expected to be $840,000 per annum and will be paid over
by the tenant quarterly in advance. Rental relating to the quarter under review becomes
due on July 1.
Other operating expenses are expected to be $432,000 per annum and will be settled
monthly.
vii)
ix)
Wages and salaries are expected to be $2,304,000 per annum and will be paid monthly.
In the month of August, furniture & fixtures, which cost $455,000, will be sold to an
employee at a loss of $20,000. Accumulated depreciation on the furniture & fixtures at that
time is expected to be $305,000. The employee will be allowed to pay a deposit equal to
60% of the selling price in August with the balance settled in two equal amounts in
September & October.
x)
хі)
As part of its investing activities, the management of Sallat Household Furnishings &
Appliances is in the process of completing a major addition to the business property, which
is estimated to cost $1,200,000, and which is being funded by external borrowing. $420,000
of the principal, along with interest of $14,200 is due to be paid on July 15, 2022.
xii)
The cash balance on September 30, 2022, is expected to be an overdraft of $147,500.

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