You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company's operations: a. The cash balance on December 1 is $51,200. b. Actual sales for October and November and expected sales for December are as follows: October $ 74,200 $ 79,600 $ 83,600 $ 455,000 $ 550,000 $ 673,000 November December Cash sales Sales on account Sales on account are collected over a three-month period following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible. follows: 20% collected in the month of sale, 60% collected in the month c. Purchases of inventory will total $346,000 for December. Thirty percent of a month's inventory purchases are paid during the month of purchase. The accounts payable remaining from November's inventory purchases total $177,000, all of which will be paid in December. d. Selling and administrative expenses are budgeted at $473,000 for December. Of this amount, $75,000 is for depreciation. e. A new web server for the Marketing Department costing $72,000 will be purchased for cash during December, and dividends totaling $17,500 will be paid during the month. f. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company's bank to increase its cash balance as needed. Required: 1. Calculate the expected cash collections for December. 2. Calculate the expected cash disbursements for merchandise purchases for December. 3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month.
You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company's operations: a. The cash balance on December 1 is $51,200. b. Actual sales for October and November and expected sales for December are as follows: October $ 74,200 $ 79,600 $ 83,600 $ 455,000 $ 550,000 $ 673,000 November December Cash sales Sales on account Sales on account are collected over a three-month period following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible. follows: 20% collected in the month of sale, 60% collected in the month c. Purchases of inventory will total $346,000 for December. Thirty percent of a month's inventory purchases are paid during the month of purchase. The accounts payable remaining from November's inventory purchases total $177,000, all of which will be paid in December. d. Selling and administrative expenses are budgeted at $473,000 for December. Of this amount, $75,000 is for depreciation. e. A new web server for the Marketing Department costing $72,000 will be purchased for cash during December, and dividends totaling $17,500 will be paid during the month. f. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company's bank to increase its cash balance as needed. Required: 1. Calculate the expected cash collections for December. 2. Calculate the expected cash disbursements for merchandise purchases for December. 3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
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Transcribed Image Text:### December Cash Budget Preparation for Ashton Company
You are tasked with creating a December cash budget for Ashton Company, a distributor of exercise equipment. The available information includes details about the company's operations:
#### Initial Cash Balance
- **December 1 Cash Balance:** $51,200
#### Sales Information
- **Actual and Expected Sales for October, November, and December:**
| | October | November | December |
|---------------|---------|----------|----------|
| **Cash Sales** | $74,200 | $79,600 | $83,600 |
| **Sales on Account**| $455,000| $550,000 | $673,000 |
- **Collection of Sales on Account:**
- 20% collected in the month of sale.
- 60% collected in the following month.
- 18% collected in the second month after the sale.
- 2% remains uncollectible.
#### Expenses and Purchases
- **Inventory Purchases:**
- Total: $346,000 for December.
- 30% paid during the month of purchase.
- $177,000 from November purchases payable in December.
- **Selling and Administrative Expenses:**
- Budgeted at $473,000, including $75,000 for depreciation.
- **Additional Expenditures:**
- Purchase of a new web server for the Marketing Department: $72,000.
- Dividends: $17,500.
#### Financing
- **Minimum Cash Balance:** $20,000.
- **Line of Credit:** Available to increase cash balance as needed.
#### Requirements
1. **Calculate Expected Cash Collections for December.**
2. **Calculate Expected Cash Disbursements for December Merchandise Purchases.**
3. **Prepare a Cash Budget for December:**
- Include any necessary borrowing in the budget.
- Assume any interest will not be paid until the following month.
This structured approach will help ensure comprehensive financial planning for Ashton Company’s operations in December.
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