tober to December. A schdule of expected cash disbursements for accounts payable (purchases on account) for each of the months October to December. 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
tober to December. A schdule of expected cash disbursements for accounts payable (purchases on account) for each of the months October to December. 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
tober to December. A schdule of expected cash disbursements for accounts payable (purchases on account) for each of the months October to December. 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
a) The business needs to have a sense of its future cashflows and therefore requires the preparation of the following:
A schedule of budgeted cash collections for the trade receivables (sales on account) for each of the months October to December.
A schdule of expected cash disbursements for accounts payable (purchases on account) for each of the months October to December.
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 Balance Sheet for the business for 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?
c) Upon receipt of the budget the team manager has now informed you that the management of Miller Merchandising & More have indicated a desire to maintain a minimum cash balance of $125,000 each month. Based on the budget prepared, will the business be achieving this desired target? Given that the management does not wish to borrow any funds from outside soureces, suggest three (3) internal strategies that the business may employ in order to improve the organization's monthly cash flow. Each strategy must be fully explained.
Transcribed Image Text:iii)
Fixed operating expenses which accrue evenly throughout the year, are estimated to be
$1,680,000 per annum, (including depreciation on non-current assets of $420,000 per
annum) and is settled monthly.
iv)
Wages and salaries are expected to be $2,280,000 per annum and will be paid monthly.
Other operating expenses are expected to be $108,000 per quarter and will be settled
monthly.
v)
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. Accumulated depreciation on the motor vehicle at that time
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.
vi)
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.
Continued..
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Continued...
ix)
Taxation of $85,000 has to be settled in December.
x)
A money market instrument purchased by the company with a face value of $300,000 will
mature on October 15, 2021. In order to meet the financial obligations of the business,
management has decided to liquidate the investment upon maturity. On that date quarterly
interest computed at a rate of 5% per annum is also expected to be collected.
хі)
The cash balance at December 31, 2021 is expected to be an overdraft of $236,000.
Transcribed Image Text:The 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:
Cash
Sales
Sales
Month
On Account
Purchases
August
September
October
November
$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
December
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 depreciation on non-current assets of $420,000 per
annum) and is settled monthly.
iv)
Wages and salaries are expected to be $2,280,000 per annum and will be paid monthly.
Other operating expenses are expected to be $108,000 per quarter and will be settled
monthly.
v)
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. Accumulated depreciation on the motor vehicle at that time
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.
vi)
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
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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