Month BudgetedSales BudgetedPurchases May $800,000 June $900,000 $600,000 July $750,000 $550,000 August $650,000 $450,0

- November 14, 2022 - Edwin Tunner

Francis and Company has planned a cash budget for the third quarter of 2004. The cash balance on July 1, 2004 is expected to be an overdraft of $82,000.

Extracts from the sales and purchases budgets are as follows:

Month	BudgetedSales	BudgetedPurchases
May	$800,000
June	$900,000	$600,000
July	$750,000	$550,000
August	$650,000	$450,000
September	$800,000	$500,000

i) All sales are on credit and an analysis of the records shows that debtors settle according to the following pattern, in accordance with the credit terms 5/30, n90:

50% in the month of sale

30% in the month following sale 20% the following month

ii) All purchases are on credit and past experience shows that 80% are settled in the month of purchase in order to take advantage of a 10% prompt settlement discount. The balance will be disbursed in the month after purchase.

The credit terms of the suppliers – 10/30, n60.

iii) Wages and salaries are expected to be $1,800,000 per annum and are paid monthly.

iv) Fixed operating expenses, which accrue evenly throughout the year, are estimated to be $2,400,000 per annum, (including depreciation on fixed assets of $60,000 per month) and is settled monthly.

v) Taxation of $80,000 has to be settled in August.

vi) The company is expected to receive settlement on an insurance claim of

$50,000 in September.

vii) Interest on investment in other companies of $25,000 is expected in July 2004.

viii) A short-term investment in JMMB Ltd. of $80,000 will be liquidated in September 2004.

ix) The business has made arrangements with their bankers for a loan of

$250,000. The loan will be disbursed in two tranches:

July 1, 2004 $150,000

November 1, 2004 $100,000

Required:

(a) Prepare a schedule of expected cash collections for sales for each of the months July to September.

(b) Prepare a schedule of expected cash disbursements for purchases for the quarter to September 30, 2004.

(c) Prepare a cash budget, with a total column, for the quarter ending September 30, 2004, showing the expected receipts and payments for each month.

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