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 7BPSB
| Connick Company | ||||
| Schedule of expected cash collections | ||||
| Particulars | January | February | March | April |
| Budgeted/ Actual sales | 396,000 | 495,000 | 418,000 | 412,500 |
| Collections from | ||||
| Collection of January months' sales | 91,080 | |||
| Collection of months' sales | 173,250 | 113,850 | ||
| Collection of March months' sales | 167,200 | 146,300 | ||
| Collection of April months' sales | 165,000 | |||
| Total collections of credit sales | 431,530 | 425,150 | ||
Explanation of Solution
March-
Total collection of credit sales of March month is calculated as under-
April-
Total collection of credit sales of April 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 7BPSB
| Connick Company | ||||
| Schedule of budgeted ending inventory | ||||
| Particulars | January | February | March | April |
| Next period's budgeted sales (units) | 22,500 | 19,000 | 18,750 | 21,000 |
| Ratio of inventory of future sales | 20% | 20% | 20% | 20% |
| Expected budgeted sales (units) | 4,500 | 3,800 | 3,750 | 4,200 |
| Add: Safety stock (units) | 100 | 100 | 100 | 100 |
| Budgeted ending inventory (units) | 4,600 | 3,900 | 3,850 | 4,300 |
Explanation of Solution
Given,
- January sales = 18,000 units
- February sales = 22,500 units
- March sales = 19,000 units
- April sales = 18,750 units
- May sales = 21,000 units
January-
February
March
April
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 7BPSB
| Connick Company | ||||
| Merchandise purchase budget | ||||
| Particulars | January | February | March | April |
| Budgeted ending inventory | 4,600 | 3,900 | 3,850 | 4,300 |
| Add: Budgeted sales for the period | 22,500 | 19,000 | 18,750 | |
| Required inventory | 26,400 | 22,850 | 23,050 | |
| Deduct: Beginning inventory | (4,600) | (3,900) | (3,850) | |
| Units to be purchased | 21,800 | 18,950 | 19,200 | |
| Rate per unit | $12 | $12 | $12 | |
| Dollar amount of budgeted purchases | $261,600 | $227,400 | $230,400 | |
Explanation of Solution
Given,
Budgeted ending inventory- (Calculated in requirement 2)
- January = 4,600 units
- February = 3,900 units
- March = 3,850 units
- April = 4,300 units
Budgeted sales for the period
Units to be purchased is calculated as follows-
February
March
April
Dollar amount of budgeted purchases is calculated as follows-
February
March
April
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 7BPSB
| Connick Company | |||
| Schedule of expected cash payments for purchases | |||
| Particulars | February | March | April |
| Budgeted purchases | 261,600 | 227,400 | 230,400 |
| Cash disbursements for purchases- | |||
| Payment of February month's purchases | 183,120 | ||
| Payment of March month's purchases | 68,220 | 159,180 | |
| Payment of April month's purchases | 69,120 | ||
| Total cash disbursements of purchases | 251,340 | 228,300 | |
Explanation of Solution
Budgeted purchases- (calculated in requirement 3)
- February= 261,600
- March = 227,400
- April = 230,400
March-
Total cash disbursements of purchases is calculated as follows-
April-
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 7BPSB
| Connick Company | ||
| Cash Budget | ||
| Particulars | March | April |
| Beginning cash balance | 50,000 | 58,070 |
| Add: Budgeted cash receipts | 431,530 | 425,150 |
| Total cash available | 481,530 | 483,220 |
| Cash Disbursements- | ||
| Cash payments for purchases | 251,340 | 228,300 |
| Selling and administrative expenses | 160,000 | 160,000 |
| Total cash disbursements | 411,340 | 388,300 |
| Total cash available over disbursements | 70,190 | 94,920 |
| Loan Activity- | ||
| Loan form bank | 0 | 0 |
| Interest payment @12% per annum | 120 | 0 |
| Repayment of loan to bank | 12,000 | 0 |
| Ending cash balance | 58,070 | 94,920 |
| Ending loan balance | 0 | 0 |
Explanation of Solution
Given,
Beginning cash balance = $50,000
Budgeted cash receipts- (Calculated in requirement 1)
- March - $431,530
- April - $425,150
Cash payments for purchases- (Calculated in requirement 4)
- March - $251,340
- April - $228,300
March-
April-
Total cash available over disbursements is calculated as follows-
March-
April-
Interest payment-
March
Opening balance of Loan = $12,000
Conclusion:
Thus, cash budget is prepared.
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Chapter 22 Solutions
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