The management accountant at Miller Merchandising & More, Odail Russell is in the process ofpreparing the cash budget for the business for the fourth quarter of 2021. It is customary for thebusiness to borrow money during this quarter. Extracts from the sales and purchases budgets are as follows: Month ca
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
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The
as follows:
Month cash sales sales on account purchases
August $85,000 $640,000 $420,000
September $70,000 $550,000 $550,000
October $88,550 $600,000 $500,000
November $77,160 $800,000 $600,000
December $174,870 $500,000 $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
annum) and is settled monthly.
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.
is expected to be $540,000. The employee will be allowed to pay a deposit equal to 60% of the selling price in November and the balance settled in two equal amounts in December
2021 & January of 2022.
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 instalments, 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.
Co
(b) Another team member who is preparing the Budgeted
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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