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

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:






















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



(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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