Concept explainers
Concept Introduction:
Cash budget is a budget which helps to estimate the
Requirement 1-
To prepare:
Schedule of expected cash collections of credit sales.
Answer to Problem 7APSA
| Aztec Company | ||||
| Schedule of expected cash collections | ||||
| Particulars | April | May | June | July |
| Budgeted/ Actual sales | 720,000 | 360,000 | 1,080,000 | 900,000 |
| Collections from | ||||
| Collection of April months' sales | 201,600 | |||
| Collection of May months' sales | 180,000 | 100,800 | ||
| Collection of June months' sales | 216,000 | 540,000 | ||
| Collection of July months' sales | 180,000 | |||
| Total collections of credit sales | 597,600 | 820,800 | ||
Explanation of Solution
June-
Total collection of credit sales of June month is calculated as under-
July-
Total collection of credit sales of July month is calculated as under-
Conclusion:
Thus, schedule of expected cash collections of credit sales is prepared.
Concept Introduction:
Cash Budget-
Cash budget is a budget which helps to estimate the cash inflows and cash outflows of the business during a specific period of time. It includes all the revenues, expenses paid as well as any loan taken and its payment. It includes all those transactions which are made in cash. It helps to assess whether company has sufficient cash available to operate.
Requirement 2-
To prepare:
Schedule of budgeted ending inventories.
Answer to Problem 7APSA
| Aztec Company | ||||
| Schedule of budgeted ending inventory | ||||
| Particulars | April | May | June | July |
| Next period's budgeted sales (units) | 2,000 | 6,000 | 5,000 | 3,800 |
| Ratio of inventory of future sales | 20% | 20% | 20% | 20% |
| Expected budgeted sales (units) | 400 | 1,200 | 1,000 | 760 |
| Add: Safety stock (units) | 100 | 100 | 100 | 100 |
| Budgeted ending inventory (units) | 500 | 1,300 | 1,100 | 860 |
Explanation of Solution
Given,
- April sales = 4,000 units
- May sales = 2,000 units
- June sales = 6,000 units
- July sales = 5,000 units
- August sales = 3,800 units
April
May
June
July
Conclusion:
Thus, schedule of budgeted ending inventory is prepared.
Concept Introduction:
Cash Budget-
Cash budget is a budget which helps to estimate the cash inflows and cash outflows of the business during a specific period of time. It includes all the revenues, expenses paid as well as any loan taken and its payment. It includes all those transactions which are made in cash. It helps to assess whether company has sufficient cash available to operate.
Requirement 3-
To prepare:
Merchandise purchase budget.
Answer to Problem 7APSA
| Aztec Company | ||||
| Merchandise purchase budget | ||||
| Particulars | April | May | June | July |
| Budgeted ending inventory | 500 | 1,300 | 1,100 | 860 |
| Add: Budgeted sales for the period | 2,000 | 6,000 | 5,000 | |
| Required inventory | 3,300 | 7,100 | 5,860 | |
| Deduct: Beginning inventory | (500) | (1,300) | (1,100) | |
| Units to be purchased | 2,800 | 5,800 | 4,760 | |
| Rate per unit | $110 | $110 | $110 | |
| Dollar amount of budgeted purchases | $308,000 | $638,000 | $523,600 | |
Explanation of Solution
Given,
Budgeted ending inventory- (Calculated in requirement 2)
- April = 500 units
- May = 1,300 units
- June = 1,100 units
- July = 860 units
Budgeted sales for the period
- May = 2,000 units
- June = 6,000 units
- July = 5,000 units
Units to be purchased is calculated as follows-
May
June
July
Dollar amount of budgeted purchases is calculated as follows-
May
June
July
Conclusion:
Thus, merchandise purchase budget is prepared.
Concept Introduction:
Cash Budget-
Cash budget is a budget which helps to estimate the cash inflows and cash outflows of the business during a specific period of time. It includes all the revenues, expenses paid as well as any loan taken and its payment. It includes all those transactions which are made in cash. It helps to assess whether company has sufficient cash available to operate.
Requirement 4-
To prepare:
Schedule of cash payments for purchases.
Answer to Problem 7APSA
| Aztec Company | ||||
| Schedule of expected cash payments for purchases | ||||
| Particulars | May | June | July | |
| Budgeted purchases | 308,000 | 638,000 | 523,600 | |
| Cash disbursements for purchases- | ||||
| Payment of May month's purchases | 123,200 | |||
| Payment of June month's purchases | 382,800 | 255,200 | ||
| Payment of July month's purchases | 314,160 | |||
| Total cash disbursements of purchases | 506,000 | 569,360 | ||
Explanation of Solution
Budgeted purchases- (calculated in requirement 3)
- May = 308,000
- June = 638,000
- July = 523,600
June-
Total cash disbursements of purchases is calculated as follows-
July-
Total cash disbursements of purchases is calculated as follows-
Conclusion:
Thus, schedule of expected cash disbursements of purchases is prepared.
Concept Introduction:
Cash Budget-
Cash budget is a budget which helps to estimate the cash inflows and cash outflows of the business during a specific period of time. It includes all the revenues, expenses paid as well as any loan taken and its payment. It includes all those transactions which are made in cash. It helps to assess whether company has sufficient cash available to operate.
Requirement 5-
To prepare:
Cash Budget
Answer to Problem 7APSA
| Aztec Company | ||||
| Cash Budget | ||||
| Particulars | June | July | ||
| Beginning cash balance | 100,000 | 100,000 | ||
| Add: Budgeted cash receipts | 597,600 | 820,800 | ||
| Total cash available | 697,600 | 920,800 | ||
| Cash Disbursements- | ||||
| Cash payments for purchases | 506,000 | 569,360 | ||
| Selling and administrative expenses | 110,000 | 110,000 | ||
| Total cash disbursements | 616,000 | 679,360 | ||
| Total cash available over disbursements | 81,600 | 241,400 | ||
| Loan Activity- | ||||
| Loan form bank | 18,650 | 0 | ||
| Interest payment @12% per annum | 250 | 437 | ||
| Repayment of loan to bank | 0 | 43,650 | ||
| Ending cash balance | 100,000 | 197,353 | ||
| Ending loan balance | 43,650 | 0 | ||
Explanation of Solution
Given,
Beginning cash balance = $100,000
Budgeted cash receipts- (Calculated in requirement 1)
- June - $597,600
- July - $820,800 Cash payments for purchases- (Calculated in requirement 4)
- June - $506,000
- July - $569,360
June-
July-
Total cash available over disbursements is calculated as follows-
June-
July-
Interest payment-
June
Opening balance of Loan = $25,000
July-
Opening balance of Loan = $43,650
Conclusion:
Thus, cash budget is prepared.
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Chapter 22 Solutions
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