Serven Corporation has estimated its accrual-basis revenue and expenses for June 2017 and would like your help in estimating cash disbursements. Selected data from these estimated amounts are as follows:Sales: $700,000Gross Profit (based on sales): 30%Increase in trade accounts recievable for the month: $20,000Change in accounts payable during month: $0Increase in inventory during month: $10,000Variable selling, general, and administrative expenses include a charge for uncollectible accounts of 1% of sales.Total selling, general, and administrative expenses are $71,000 per month plus 15% of sales.Depreciation expense of $40,000 per month is included in fixed selling, general, and administrative expense. Required:On the basis of the preceding data, what are the estimated cash dispursements from operations for June?

Question
Asked Oct 1, 2019

Serven Corporation has estimated its accrual-basis revenue and expenses for June 2017 and would like your help in estimating cash disbursements. Selected data from these estimated amounts are as follows:

Sales: $700,000

Gross Profit (based on sales): 30%

Increase in trade accounts recievable for the month: $20,000

Change in accounts payable during month: $0

Increase in inventory during month: $10,000

Variable selling, general, and administrative expenses include a charge for uncollectible accounts of 1% of sales.

Total selling, general, and administrative expenses are $71,000 per month plus 15% of sales.

Depreciation expense of $40,000 per month is included in fixed selling, general, and administrative expense. 

Required:

On the basis of the preceding data, what are the estimated cash dispursements from operations for June?

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Step 1
For computing the cash disbursal, we need to know the payment made to accounts payable and for other expenses
For payment made to accounts payable, the cost of goods sold plus increase in inventory has been considered the purchases
and payments made to accounts payable
Depreciation is a non-cash expenditure and hence no payment needs to be made
Similarly provision for uncollectible is a non-cash expenditure, so no cash payment needs to be made for the same.
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For computing the cash disbursal, we need to know the payment made to accounts payable and for other expenses For payment made to accounts payable, the cost of goods sold plus increase in inventory has been considered the purchases and payments made to accounts payable Depreciation is a non-cash expenditure and hence no payment needs to be made Similarly provision for uncollectible is a non-cash expenditure, so no cash payment needs to be made for the same.

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Step 2
statement of cash receipts & disbursal
from operation
Cash receipt
Sales
700000
Less. Increase in receivables
Cash collected from customers
-20,000
680,000
Cash payments
Payment to accounts payable
500000
Payment for selling, general and admin
total selling, general & admin expenses
less. Charge for uncollectible debtors
less.depreciation
Payment for selling, general and admin
total payments
78000
-7000
-40,000
31000
531000
Net cash generated from operations
(cash collection-disbursal)
149,000
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statement of cash receipts & disbursal from operation Cash receipt Sales 700000 Less. Increase in receivables Cash collected from customers -20,000 680,000 Cash payments Payment to accounts payable 500000 Payment for selling, general and admin total selling, general & admin expenses less. Charge for uncollectible debtors less.depreciation Payment for selling, general and admin total payments 78000 -7000 -40,000 31000 531000 Net cash generated from operations (cash collection-disbursal) 149,000

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