Question

Problem 22-6AA (Algo) Merchandising: Preparation of Cash Budgets (for three periods) LO P4

Oneida Company began its operations in August. During August, sales amounted to $170,000, and purchases were $105,000. The starting cash balance for September is $34,000. On September 2, Oneida's owner requests a $99,000 loan from the bank, to be repaid on November 30. The bank's loan officer requests the owner to prepare monthly cash budgets. The budgeted sales, merchandise purchases, and cash payments for other expenses for the next three months are as follows:

Budgeted:
September
Sales: $260,000
Merchandise Purchases: $225,000
Cash Payments:
Salaries: $31,800
Rent: $9,000
Insurance: $5,200
Repayment of Loan: $99,000
Interest on Loan: $990
October
Sales: $425,000
Merchandise Purchases: $210,000
Cash Payments:
Salaries: $31,800
Rent: $9,000
Insurance: $5,200
November
Sales: $470,000
Merchandise Purchases: $199,000
Cash Payments:
Salaries: $31,800
Rent: $9,000
Insurance: $5,200
Additional Information:

All sales are on credit, where 78% of credit sales are collected in the month following the sale, and the remaining 22% is collected in the second month following the sale.
All merchandise is purchased on credit, with 88% of the balance paid in the month following a purchase, and the remaining 12% paid in the second month.
Required:

Prepare a schedule of cash receipts from sales.
Prepare a schedule of cash payments for direct materials.
Prepare a cash budget.

Answer 1

To prepare a schedule of cash receipts from sales, you need to consider the credit sales collection policy. Multiply the sales for each month by the collection percentages to calculate the cash receipts.

Step-by-step explanation:

To prepare a schedule of cash receipts from sales, you need to consider the credit sales collection policy. According to the given information, 78% of credit sales are collected in the month following the sale, and the remaining 22% is collected in the second month following the sale.

To calculate the cash receipts from sales for September, you would multiply the September sales ($260,000) by the collection percentage. So, the cash receipts for September would be $202,800 ($260,000 x 78%).

Similarly, for October and November, you would calculate the cash receipts from sales based on the respective collection percentages for each month.