Answered: Required: Prepare a cash budget for…

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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Question

Cash Budget LeeAnn Ortiz owns a retail store that sells new and used sporting equipment. LeeAnn has requested a cash budget for October. After examining the records of the company, you find the following: Cash balance on October 1 is $1,130. Actual sales for August and September are as follows: August September Cash sales $6,000 $4,500 Credit sales 58,000 62,000 Total sales $64,000 $66,500 Credit sales are collected over a three-month period: 40 percent in the month of sale, 36 percent in the next month, and 22 percent in the second month after the sale. The remaining sales are uncollectible. Inventory purchases average 70 percent of a month's total sales. Of those purchases, 45 percent are paid for in the month of purchase. The remaining 55 percent are paid for in the following month. Salaries and wages total $3,850 per month. Rent is $3,150 per month. Taxes to be paid in October are $1,635. LeeAnn usually withdraws $3,500 each month as her salary. Advertising is $1,500 per month. Other operating expenses total $3,800 per month. Internet and telephone fees are $340 per month. LeeAnn tells you that she expects cash sales of $5,000 and credit sales of $63,000 for October. She likes to have $3,000 on hand at the end of the month and is concerned about the potential October ending balance. Required: Question Content Area Prepare a cash budget for October. Include supporting schedules for cash collections and cash payments. Round your intermediate computations and final answers to the nearest dollar. Wooster Sporting Goods Store Cash Budget For the Month of October Beginning cash balance $fill in the blank 2db29afd7f93fa9_1 1,130 Collections: Cash sales fill in the blank 2db29afd7f93fa9_2 5,000 Credit sales: October fill in the blank 2db29afd7f93fa9_3 53,740 September fill in the blank 2db29afd7f93fa9_4 66,500 August fill in the blank 2db29afd7f93fa9_5 12,760 Total cash available $fill in the blank 2db29afd7f93fa9_6 66,410 Disbursements: Inventory purchases: October $fill in the blank 2db29afd7f93fa9_7 1,635 September fill in the blank 2db29afd7f93fa9_8 25,217 Salaries and wages fill in the blank 2db29afd7f93fa9_9 3,850 Rent fill in the blank 2db29afd7f93fa9_10 3,150 Taxes fill in the blank 2db29afd7f93fa9_11 1,635 Other operating expenses fill in the blank 2db29afd7f93fa9_12 3,800 Owner withdrawal fill in the blank 2db29afd7f93fa9_13 3,500 Advertising fill in the blank 2db29afd7f93fa9_14 1,500 Internet and telephone fill in the blank 2db29afd7f93fa9_15 340 fill in the blank 2db29afd7f93fa9_16 64,707 Ending cash balance $fill in the blank 2db29afd7f93fa9_17 1,703 Feedback Area Feedback The cash budget begins with the beginning cash balance. Add all cash receipts. Subtract all cash disbursements. Calculate the ending cash balance. Question Content Area Explain how each of the four data analytic types—descriptive, diagnostic, predictive, or prescriptive—can be used in LeeAnn's budgeting process. (See Exhibits 2.5 and 2.6, for a review of data analytic types.) The cash budget is used both diagnosticly and predictively to describe what is expected given LeeAnn's assumptions. Feedback Area Feedback Incorrect Feedback Area Feedback Partially correct

**Wooster Sporting Goods Store Cash Budget Analysis for October**

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### Overview and Background

LeeAnn, the head of Wooster Sporting Goods Store, identified gaps in managing the store's cash resources and sought assistance in preparing a cash budget to anticipate October's cash flow needs. This involved predicting collections from sales and planning for inventory costs and other expenditures. After reviewing the store's recent sales and past collections, we crafted a detailed cash flow projection for October.

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### Key Financial Information

#### Starting Point in October:
- **Cash balance on October 1**: $1,130

#### Historical Sales Data:
- **Sales Figures for August and September:**

| | August | September |
|--------------------------|-----------|-----------|
| **Cash sales** | $6,000 | $4,500 |
| **Credit sales** | $58,000 | $62,000 |
| **Total sales** | $64,000 | $66,500 |

#### Collection Pattern of Credit Sales:
- **Credit sales collections over three months**:
- 40% collected in the month of sale.
- 36% collected the following month.
- 22% collected two months later.
- 2% considered uncollectible.

#### Inventory and Payment Strategy:
- Inventory purchases average 70% of monthly sales.
- 45% of these purchases are paid for in the purchase month.
- The remaining 55% are paid for in the following month.

#### Monthly Operating Expenses:
- **Salaries and wages**: $3,850
- **Rent**: $3,150
- **Taxes to be paid in October**: $1,635
- **LeeAnn's regular monthly withdrawal**: $3,500
- **Advertising**: $1,500
- **Other operating expenses**: $3,800
- **Internet and telephone fees**: $340

In discussion with LeeAnn, it's also noted she expects cash and credit sales for October to be $5,000 and $63,000 respectively, and wants to maintain a minimum of $3,000 cash on hand by the end of the month.

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### Detailed Cash Budget for October

**Wooster Sporting Goods Store**
**Cash Budget**
**For the Month of October**

| Category | Amount ($) |
|-----------------------------

Definition Definition Estimate of an organization's cash flow for a future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future.

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