Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883



Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Cash budget
The controller of Shoe Mart Inc. asks you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:

The company expects to sell about 20% of its merchandise for cash. Of sales on account, 75% are expected to be; collected in full in the month following the sale and the remainder the following month. Depreciation, insurance, and property tax expense represent $40,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in June, and the annual property taxes are paid in October. Of the remainder of the manufacturing costs, 90% axe expected to be paid in the month in which they are incurred and the balance in the following month. All sales and administrative expenses are paid in the month incurred. Current assets as of January 1 include cash of $45,000, marketable securities of $65,000, and accounts receivable of $290,000 ($240,000 from December sales and $50,000 from Novembersales). Sales on account in November and December were $200,000 and $240,000, respectively. Current liabilities as of January 1 include a $50,000, 8%, 90-day note payable due March 20 and $18,000 of accounts payable incurred in December for manufacturing costs. All selling and administrative expenses are paid in cash in the period the)' are incurred. It is expected that $20,000 in dividends will be received in January. An estimated income tax payment of $15,000 will be made in February. Shoe Mart's regular quarterly dividend of $5,000 is expected to be declared in February and paid in March. Management desires to maintain a minimum cash balance of $35,000.


Prepare a monthly cash budget and supporting schedules for January, February, and March.

To determine

Concept Introduction:

Cash budget is the statement which shows all the estimated receipt and payment. Cash flow statement is necessary to be maintained by the company to know the inflow and outflow of the cash.

To Prepare:

The monthly cash budget for January, February and March.


The cash budget of Shoe Mart Inc. for January, February and March are as follows:

    DS Inc.
    Cash Budget
    For the month of January, February and March
    Estimated cash receipt for:
    Cash sales (W.N. 1) $90,000 $110,000 $140,000
    Collection of account receivable (Table 2) $192,500 $330,000 $420,000
    Dividend Income $20,000
    Total cash receipts A $302,500 $440,000 $560,000
    Estimated cash payments for:
    Manufacturing costs (Table 3) $216,000 $283,000 $371,000
    Selling and administrative expenses $100,000 $140,000 $150,000
    Capital expenditures $45,000
    Income tax payment $15,000
    Dividend payment $5,000
    Payment of credit note $50,000
    Total Cash Payments B $316,000 $438,000 $621,000
    Cash Increase (decrease) AB ($13,500) $2,000 ($61,000)
    Cash balance at the beginning of the month $110,000 $96,500 $98,500
    Cash balance at the end of the month $96,500 $98,500 $37,500
    Minimum cash balance $35,000 $35,000 $35,000
    Excess (Deficiency) $61,500 $63,500 2,500

Working Note:

  1. Calculation of sales in cash

For January:

  Sales in cash =$450,000×20%=$90,000

For February:

  Sales in cash =$550,000×20%=$110,000

For March:

  Sales in cash =$700,000×20%=$140,000

Table 2

Statement of collection of sales:

    DS Inc

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