Chapter 20, Problem 31E

(1)

To determine

To prepare: Cash receipt budget for the month of July, August and September.

Explanation of Solution

Company K
Cash Receipt Budget
Particulars	July Amount ($)	August Amount ($)	September Amount ($)
Sales	64,000	80,000	48,000
Cash collection:
Previous sale (80% of previous sale)	45,000	51,200	64,000
Current sale (20% of current sale)	12,800	16,000	9,600
Total	57,800	67,200	73,600
Table (1)

(2)

To determine

To prepare: Monthly cash budget for the month of July, August and September.

Explanation of Solution

Company K
Cash Budget
Particulars	July Amount ($)	August Amount ($)	September Amount ($)
Beginning cash balance	15,000	15,000	25,504
Add: Cash receipts (From part 1)	57,800	67,200	73,600
Total cash available	72,800	82,200	99,100
Less: Cash disbursement (Working Note 1)	57,300	52,100	49,700
Interest expense (working note 2)	50	46	-
Preliminary cash balance	15,450	30,054	49,404
Less: Required ending cash balance	15,000	15,000	15,000
Surplus	450	15,054	34,404
Beginning balance of loan	5,000	4,550	0
Add: Additional loan from bank	0	0	0
Less: Repayment of loan	450	4,550	0
Ending loan balance	4,550	0	0
Ending cash balance to be carried forward next month	15,000	25,504	49,404
Table (2)

Working Note 1:

Company K
Cash Disbursements
Particulars	July Amount ($)	August Amount ($)	September Amount ($)
Cash payments for merchandise	40,400	33,600	34,400
Sales commission $\left(\text{sales}\times \text{10\%}\right)$	6,400	8,000	4,800
Salaries	4,000	4,000	4,000
Rent	6,500	6,500	6,500
Total	57,300	52,100	49,700
Table (3)

Working Note 2:

Formula to calculate interest expense for the month,

$\text{Interest expense}=\text{Beginning balance of loan}\times 1\%$

For April,
Given,
Beginning balance of loan $5,000.

Substitute $5,000 for beginning balance.

$\begin{array}{c}\text{Interest expense}=\$5,000\times 1\%\\ =\$50\end{array}$

For May,
Beginning balance of loan $4,550 (calculated).

Substitute $4,550 for beginning balance.

$\begin{array}{c}\text{Interest expense}=\$4,550\times 1\%\\ =\$46\end{array}$

For June,
Beginning balance of loan $0 (calculated).

Substitute $0 for beginning balance.

$\begin{array}{c}\text{Interest expense}=\$0\times 1\%\\ =\$0\end{array}$