Cen has burn Credit sales Cash sales Total sales 135000 1250

Ce,n has burn Credit sales Cash sales Total sales 135,000 125,000 $380.00 90,000 225.000 285.000 past experience n kat s that 60% of the creda sales wil be colech dinthe month of sale and the remaining 40% wil be colected hte klo ing month Pachases of m and 50% is paid in the month of purchase and 50% n the month foloving purchase Eludgeted iwentory purchases are ny nalo ndi June July August 300,000 240000 105,000 Other cash disbursements budgeted 30,000 cash (a) seling and administraive expenses et S48 000 each month, db) divi na dS103COO wil be Peth Aly and (c) Pr hae?qu i, h A gut tr The company wishes to maintain a \"inimum cash balance of $50.000 at the end of each month The company borrows money bonte bank at 6% interest i\' necessary to maintain the main um ? h balance Borrowed money s repa din months when there is an excess cash balance The beg ning cash balance on July 1 was$50,000 Assu e that bomo ed mor y this case b for month Instructions: Present the analysis in a table Prepare a cash budget for the months of July and August Prepare separate schedules for expected collections fromcseand expected payments for purchases of inventory

Solution

Solution:

CRUISES, INC.

Cash Budget

For the Two Months of July and August

Particulars

July ($)

August ($)

Beginning cash balance

$ 50,000

$ 50,000***

Add: Cash Receipts

Collections from customers

129,000

104,000

Cash sales

255,000

195,000

Total receipts

384,000

299,000

Total available cash (Total receipts + Beginning cash balance)

434,000

349,000

Less: Disbursements

Purchases

270,000

172,500

Selling and administrative expenses

48,000

48,000

Dividends

103,000

-

Equipment purchase

-

30,000

Total disbursements

421,000

250,500

Excess (deficiency) of available cash over disbursements (Total available cash – Total disbursement)

13,000

98,500

Financing

Borrowings

37,000*

Repayments

(37,185)**

Ending cash balance

$ 50,000

$ 61,315

*As the company wishes to maintain minimum cash balance of $ 50,000 at the end of each month, July end is having $ 13,000 cash balance. So, $ 37,000 will be borrowed to make it $ 50,000.

**Given that borrowed money is repaid in months when there is an excess cash balance. Along with the interest of 6%. As, August is having cash balance of $ 98,500 which is excess of $ 50,000. So, borrowed amount will be repaid in August along with interest.

=Borrowed amount + Interest

=$37,000 + $37,000 × 6% × 1/12

= $37,000 + $185 = $37,185

***Ending cash balance of July will be the beginning cash balance of August.

Schedule of Expected Collections from Customers

Particulars

July ($)

August ($)

Credit sales

June (135,000)

$ 54,000 (WN 1)

July ($125,000)

75,000 (WN 1)

$ 50,000 (WN 2)

August ($90,000)

54,000 (WN 2)

Total collections

$129,000

$104,000

Working Notes (WN): Given that past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month.

1. July expected collection from customer:

From June credit sales = $ 135,000 X 40% = $ 54,000

From July credit sales = $ 125,000 X 60% = $ 75,000

2. August expected collection from customer:

From July credit sales = $ 125,000 X 40% = $ 50,000

From August credit sales = $ 90,000 X 60% = $ 54,000

Schedule of Expected Payments for purchases of inventory

Particulars

July ($)

August ($)

Inventory purchases

June ($300,000)

$150,000 (WN 1)

July ($240,000)

120,000 (WN 1)

$120,000 (WN 2)

August ($105,000)

52,500 (WN 2)

Total payments

$270,000

$172,500

Working Notes (WN): Given that Purchases of inventory are all on credit and 50% is paid in the month of purchase and 50% in the month following purchase.

1. July expected payment for purchases of inventory:

From June credit purchase = $ 300,000 X 50% = $ 150,000

From July credit purchase = $ 240,000 X 50% = $ 120,000

2. August expected payment for purchases of inventory:

From July credit purchase = $ 240,000 X 50% = $ 120,000

From August credit purchase = $ 105,000 X 50% = $ 52,500

CRUISES, INC.
Cash Budget
For the Two Months of July and August
Particulars	July ($)	August ($)
Beginning cash balance	$ 50,000	$ 50,000***
Add: Cash Receipts
Collections from customers	129,000	104,000
Cash sales	255,000	195,000
Total receipts	384,000	299,000
Total available cash (Total receipts + Beginning cash balance)	434,000	349,000
Less: Disbursements
Purchases	270,000	172,500
Selling and administrative expenses	48,000	48,000
Dividends	103,000	-
Equipment purchase	-	30,000
Total disbursements	421,000	250,500
Excess (deficiency) of available cash over disbursements (Total available cash – Total disbursement)	13,000	98,500
Financing
Borrowings	37,000*
Repayments		(37,185)**
Ending cash balance	$ 50,000	$ 61,315