Financial & Managerial Accounting
Financial & Managerial Accounting
17th Edition
ISBN: 9780078025778
Author: Jan Williams, Susan Haka, Mark S Bettner, Joseph V Carcello
Publisher: McGraw-Hill Education
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Chapter 23, Problem 3BP
To determine

Prepare a cash budget of Company B for the month of November with the help of cash collections on accounts receivable schedule, and cash payments for purchases of merchandise schedule.

Expert Solution & Answer
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Answer to Problem 3BP

Company B
Cash Budget
For the Month Ended November 30
Particulars$$
 Cash balance at beginning of month37,200
Add: Receipts
Collections on receivables ( refer Schedule A – Table 2)820,000
Sale of fully depreciated equipment9,000829,000
Total cash available866,200
Less: Payments
Payments for purchases of merchandise (refer Schedule B – Table 3)477,000
Payments on operating expenses (10)185,000
Payment on note payable102,250764,250
 Cash balance at end of month101,950

Table (1)

Therefore, the cash balance at the end of the November is $101,950.

Explanation of Solution

Budget:

Budget is an effective tool to achieve the financial and operational goals of the business. Budget is the key element of the financial planning and it assists managers to control the business cost. Management should set the budgeted amount at reasonable and achievable levels.

Prepare the schedule of cash collections on accounts receivable, and cash payments for purchases of merchandise as follows:

Schedule A:

Schedule A—Collections on Receivables in November $
September sales (1)15,000
October sales (2)175,000
November sales (3)630,000
 Total collections on receivables820,00

Table (2)

Schedule B:

Schedule B—Payments for Purchases of Merchandise $
On October purchases (8)217,000
On November purchases (9)269,500
 Total payments for purchases of merchandise486,500

Table (3)

Working note:

Calculate the cash received from the September sales

Cash received from the September sales} = [Number units sold during the September month×Sales price per unit×7 percent in the second month following the sales]=50,000 units×$10 per unit×3100=$15,000 (1)

Calculate the cash received from the October sales

Cash received from the October sales} = [Number units sold during the September month×Sales price per unit×20 percent in the following month the sales]=70,000 units×$10 per unit×25100=$175,000 (2)

Calculate the cash received from the November sales

Cash received from the November sales} = [Number units sold during the November month×Sales price per unit×20 percent in the current (November) month sales]=90,000 units×$10 per unit×70100=$630,000 (3)

Calculate the inventory (units) at the end of the September

Inventory at the end of the September }[Fixed units maintained in the each month + (The number of units sold in the following month×10 percent)]=2,000 units + (70,000 units ×10100)=2,000 units + 7,000 units=9,000 units (4)

Calculate the inventory (units) at the end of the October

Inventory at the end of the October }[Fixed units maintained in the each month + (The number of units sold in the following month ×10 percent)]=2,000 units + (80,000 units ×10100)=2,000 units + 8,000 units=10,000 units (5)

Calculate the inventory (units) at the end of the November

Inventory at the end of the November }[Fixed units maintained in the each month + (The number of units sold in the following month ×10 percent)]=2,000 units + (90,000 units ×10100)=2,000 units + 9,000 units=11,000 units (6)

Calculate the number of units purchased and cost of purchase for the each months

Particulars

Units

(A)

Cost of per unit

(B)

Purchases

C =(A×B)

 Inventory at end of September (4)9,000
 Add: Purchases in October (70,000 + 11,000 (5)  9,000)72,000$7$432,000
 Available for sale in October81,000
 Less: Sales in October70,000
 Inventory at end of October11,000
 Add: Purchases in November (90,000 + 8,000(6)  11,000)87,000$7$522,000
 Available for sale in November98,000
 Less: Sales in November (estimated)90,000
 Inventory at end of November8,000

Table (4)

(7)

Calculate the cash paid for the merchandise purchase for the month October

Cash paid for the merchandise purchase for the month October}=[Purchase in the month of October ×(50 percent of th purcahse in the given month are paid in the following month)]=$432,000×50100=$216,000 (8)

Calculate the cash paid for the merchandise purchase for the month November

Cash paid for the merchandise purchase for the month November}=[Purchase in the month of November ×(50 percent of th purcahse in the given month )]=$522,000×50100=$261,000 (9)

Calculate the operating expense under cash budget

Operating expense =( Budgeted operating expense Depreciation expense)=$225,000$40,000=$185,000 (10)

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Chapter 23 Solutions

Financial & Managerial Accounting

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