Another team member who is preparing the Budgeted Balance Sheet for the business for the same quarter ending March 31, 2023 and has asked you to furnish him with the figures for the expected trade receivables and payables to be included in the statement. Is that a reasonable request? If ves, what should these amounts be?
Another team member who is preparing the Budgeted Balance Sheet for the business for the same quarter ending March 31, 2023 and has asked you to furnish him with the figures for the expected trade receivables and payables to be included in the statement. Is that a reasonable request? If ves, what should these amounts be?
Chapter6: Managing Cash Flow
Section: Chapter Questions
Problem 12SEP
Related questions
Concept explainers
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.
Question
Another team member who is preparing the Budgeted Balance Sheet for the business for
the same quarter ending March 31, 2023 and has asked you to furnish him with the figures
for the expected trade receivables and payables to be included in the statement. Is that a
reasonable request? If ves, what should these amounts be?
Transcribed Image Text:Varsity Supplies & Things is a family-owned store. The business is now approaching the end of
the year and is desirous of identifying its expected cash inflows and outflows for the first quarter of
the new year. You are the management accountant of the entity and have been tasked to prepare
the cash budget for the business for the quarter ending March 31, 2023. The following data is
available:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Extracts from the sales and purchases budgets are as follows:
Month
Sales
2022 - 2023
On
Account
$480,000
$600,000
$650,000
$700,000
$800,000
November 2022
December 2022
January 2023
February 2023
March 2023
(x)
Cash
Sales
$142,100
$165,500
$171,475
$144,940
$236,720
Cash
Purchases
$25,800
$44,625
$30,400
$55,100
55% in the month of sale
35% in the first month following the sale
8% in the second month following the sale
The remaining 2% is expected to be uncollectible
Purchases
On
Account
$345,000
An analysis of the records shows that trade receivables (accounts receivable) are settled
according to the following credit pattern, in accordance with the credit terms 4/30, n90:
Continued.
$380,000
$400,000
$480,000
$540,000
Accounts payable are settled as follows, in accordance with the credit terms 2/30, n60:
85% in the month in which the inventory is purchased
15% in the following month
The management of Varsity Supplies & Things has negotiated with a tenant to sublet office
space to her beginning February 1. The rental is expected to be $576,000 per annum. The
first month's rent along with one month's safety deposit is expected to be collected on
February 1. Thereafter, monthly rental income becomes due at the beginning of each
month.
Office Furniture & Fixtures, which is estimated to cost $350,000, will be purchased in
February. The manager has made arrangement with the suppliers to make a cash deposit of
40% upon signing of the agreement in February. The balance will be settled in five (5) equal
monthly instalments beginning March of 2023.
The management of Varsity Supplies & Things is in the process of upgrading its fleet of
motor vehicles. During February the business expects to sell an old delivery motor van that
cost $720,000 at a loss of $45,000 to an employee. Accumulated depreciation on this motor
van at that time is expected to be $375,000. The employee will be allowed to pay a deposit
equal to 50% of the selling price in February; the balance will be settled in two equal
amounts in March & April of 2023.
(vii) Fixed operating expenses which accrue evenly throughout the year, are estimated to be
$2,088,000 per annum, which include depreciation on non-current assets of $504,000 per
annum and are expected to be settled monthly.
(viii) Other operating expenses which accrue evenly throughout the year are expected to be
$672,000 per annum and will be settled monthly.
(ix)
A long-term bond purchased by Varsity Supplies & Things two (2) years ago, with a face
value of $450,000 will mature on January 15, 2023. To meet the financial obligations of the
business, management has decided to liquidate the investment upon maturity. On that date
semi-annual interest computed at a rate of 8%% per annum is also expected to be collected
As part of its investing activities, the management of Varsity Supplies & Things has just
concluded an expansion project relating to the business's storage facilities. The project
required capital outlay of $1,600,000 and was funded by a loan from a family member, who
is a silent partner in the business. $320,000 of the principal along with interest of $35,000
will become due and payable on January 25, 2023.
(xi)
Wages and salaries are expected to be $3,384,000 per annum and will be paid monthly.
(xii) The cash balance on March 31, 2023, is expected to be an overdraft of $248,000
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
