You have been hired as the controller at Akfit, a distributor of exercise equipment. The manager has provided you with the following financial information to start preparing the budget for the upcoming month: Cash balance at December 1 is $40,000. Actual sales for October and November and budgeted sales for December are shown below. Sales on account are collected over a three-month period: 20% in the month of sale, 60% in the month following the sale, and 18% collected in the second month following the sale. The remaining 2% is uncollectible. October November December Cash Sales $65,000 $70,000 $83,000 Sales on account 400,000 525,000 600,000 Purchase of inventory will total $280,000 in December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable balance at the end of November totals $161,000 which will be paid in December. Selling and administrative expenses are budgeted at $430,000 for December (which includes $50,000 in depreciation). A new web server for the marketing department costing $76,000 will be purchased for cash during the month of December, and dividends totalling $9,000 will be paid during the month. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank as needed. Required: Prepare a schedule of expected cash collections for the month of December. Prepare a schedule of expected cash disbursements for the month of December. Prepare a cash budget for the month of December.

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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You have been hired as the controller at Akfit, a distributor of exercise equipment. The manager has provided you with the following financial information to start preparing the budget for the upcoming month:
Cash balance at December 1 is $40,000.
Actual sales for October and November and budgeted sales for December are shown below. Sales on account are collected over a three-month period: 20% in the month of sale, 60% in the month following the sale, and 18% collected in the second month following the sale. The remaining 2% is uncollectible.

	October	November	December
Cash Sales	$65,000	$70,000	$83,000
Sales on account	400,000	525,000	600,000

Purchase of inventory will total $280,000 in December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable balance at the end of November totals $161,000 which will be paid in December.
Selling and administrative expenses are budgeted at $430,000 for December (which includes $50,000 in depreciation).
A new web server for the marketing department costing $76,000 will be purchased for cash during the month of December, and dividends totalling $9,000 will be paid during the month.
The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank as needed.
Required:
Prepare a schedule of expected cash collections for the month of December.
Prepare a schedule of expected cash disbursements for the month of December.
Prepare a cash budget for the month of December.
Budgeting helps in the planning and controlling of both fixed and variable costs. Explain the difference, if any, between planning and controlling of fixed costs and variable costs.

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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