EXERCISE 7–15 Cash Budget Analysis [LO8]

A cash budget, by quarters, is shown below for a retail company (000 omitted). The company requires a minimum
cash balance of $5,000 to start each quarter.

Required:

Fill in the missing amounts in the table above.

PROBLEM 7–16A Schedules of Expected Cash Collections and Disbursements [LO2, LO4, LO8]

Calgon Products, a distributor of organic beverages, needs a cash budget for September. The following information
is available:

a. The cash balance at the beginning of September is $9,000.

b. Actual sales for July and August and expected sales for September are as follows: Sales on
account are collected over a three-month period as follows: 10% collected in the month of
sale, 70% collected in the month following sale, and 18% collected in the second month
following sale. The remaining 2% is uncollectible.
c. Purchases of inventory will total $25,000 for September. Twenty percent of a month’s
inventory purchases are paid for during the month of purchase. The accounts payable
remaining from August’s inventory purchases total $16,000, all of which will be paid in
September.
d. Selling and administrative expenses are budgeted at $13,000 for September. Of this amount,
$4,000 is for depreciation.
e. Equipment costing $18,000 will be purchased for cash during September, and dividends
totaling $3,000 will be paid during the month.
f. The company maintains a minimum cash balance of $5,000. An open line of credit is
available from the company's bank to bolster the cash balance as needed.

Required:

1. Prepare a schedule of expected cash collections for September.

2. Prepare a schedule of expected cash disbursements for inventory purchases for September.
3. Prepare a cash budget for September. Indicate in the financing section any borrowing that
will be needed during September. Assume that any interest will not be paid until the
following month.
Exercise 7-15 (20 minutes)

Quarter (000 omitted)

1 2 3 4 Year
Cash balance, beginning .......... $ 9 * $ 5 $ 5 $ 5 $ 9
Add collections from customers 76 90 125 * 100 391 *
Total cash available .................. 85 * 95 130 105 400
Less disbursements:
Purchase of inventory ............ 40 * 58 * 36 32 * 166
Operating expenses ............... 36 42 * 54 * 48 180 *
Equipment purchases ............ 10 * 8 * 8 * 10 36 *
Dividends ............................. 2 * 2 * 2* 2 * 8
Total disbursements ................. 88 110 * 100 92 390
Excess (deficiency) of cash
available over disbursements . (3) * (15) 30 * 13 10
Financing:
Borrowings ........................... 8 20 * 0 0 28
Repayments (including
interest) ............................. 0 0 (25) (7) * (32)
Total financing ......................... 8 20 (25) (7) (4)
Cash balance, ending ............... $5 $ 5 $ 5 $ 6 $ 6

*Given.
Problem 7-16A (30 minutes)

1. September cash sales .............................................. $ 7,400

September collections on account:
July sales: $20,000 × 18% .................................... 3,600
August sales: $30,000 × 70% ............................... 21,000
September sales: $40,000 × 10% ......................... 4,000
Total cash collections ............................................... $36,000

2. Payments to suppliers:
August purchases (accounts payable) .................... $16,000
September purchases: $25,000 × 20% .................. 5,000
Total cash payments ................................................ $21,000

3. Calgon Products
Cash Budget
For the Month of September
Cash balance, September 1.................................. $ 9,000
Add cash receipts:
Collections from customers................................ 36,000
Total cash available before current financing ......... 45,000
Less disbursements:
Payments to suppliers for inventory ................... $21,000
Selling and administrative expenses ................... 9,000 *
Equipment purchases ........................................ 18,000
Dividends paid .................................................. 3,000
Total disbursements ............................................ 51,000
Excess (deficiency) of cash available over
disbursements .................................................. (6,000)
Financing:
Borrowings ....................................................... 11,000
Repayments ..................................................... 0
Interest ............................................................ 0
Total financing .................................................... 11,000
Cash balance, September 30 ................................ $ 5,000

*$13,000 – $4,000 = $9,000.