Question

Joe Burns provides you with the following information for the coming months of January

February and March.
Actual and budgeted sales and purchases details are as follows:
Nov $
Dec $
Jan $
Cash sales
Credit sales
Cash purchases
Credit purchases
Weeks in the
month
115,000
125.000
80.000
128,000
138,000
94,000
45,000
42,000
88,000
110,000
30,000
80,000
FebsT
100.000
114,000
110,000
114,000
Mar$
120.000
132,000
42,000
100.000
Rent paid per week
Rent received per week
Wages per week:
Selling
Administration
Distribution
Other operating expenses per week:
Selling
$
400
100
6.800
1,800
8.600
17,200
Distribution
1,800
500
1,600
3900
Accounts receivable regularly settle their accounts as follows:
*85% pay in the month following sale (these accounts take advantage of a 5% discount)
*10% pay in the 2nd month
* 3% pay in the 3rd month
* The balance is written off as bad.
October accounts were paid in full in December.
Accounts payable are settled in the month following purchase. From 85% of suppliers, a discount of 5% is received. For the remaining 15%, no discount is received.
Other operating expenses include an amount of $800 per month for depreciation as follows:
Selling
Administratior
Distribution
5300
$200
$300
$800
Capital expenditure of $55,000 will be paid in February.
Bank balance as at 31 December was $175.000

Answer 1

To prepare a cash budget for Joe Burns for the months of January, February, and March, we need to estimate the cash inflows and outflows for each month.

Cash Inflows:

• Cash sales: $80,000 (Jan), $110,000 (Feb), $120,000 (Mar)
• Collections from credit sales:
• January:
• 85% of $138,000 (sales from Dec) = $117,300 with a 5% discount = $111,435
• 10% of $138,000 (sales from Nov) = $13,800
• 3% of $138,000 (sales from Oct) = $4,140
• February:
• 85% of $128,000 (sales from Jan) = $108,800 with a 5% discount = $103,360
• 10% of $128,000 (sales from Dec) = $12,800
• 3% of $128,000 (sales from Nov) = $3,840
• March:
• 85% of $110,000 (sales from Feb) = $93,500 with a 5% discount = $88,825
• 10% of $110,000 (sales from Jan) = $11,000
• 3% of $110,000 (sales from Dec) = $3,300

• Rent received per week: $100 x 4 weeks = $400 (Jan), $100 x 4 weeks = $400 (Feb), $100 x 4 weeks = $400 (Mar)
• Bank loan: None

Total cash inflows: $120,775 (Jan), $130,400 (Feb), $135,765 (Mar)

Cash Outflows:

• Cash purchases: $94,000 (Jan), $114,000 (Feb), $42,000 (Mar)
• Payments to suppliers:
• January:
• 85% of $110,000 (purchases from Dec) = $93,500 with a 5% discount = $88,825
• 15% of $110,000 (purchases from Dec) = $16,500
• February:
• 85% of $128,000 (purchases from Jan) = $108,800 with a 5% discount = $103,360
• 15% of $128,000 (purchases from Jan) = $19,200
• March:
• 85% of $42,000 (purchases from Feb) = $35,700 with a 5% discount = $33,915
• 15% of $42,000 (purchases from Feb) = $6,300
• Wages:
• Selling: $6,800 (Jan), $6,800 (Feb), $6,800 (Mar)
• Administration: $1,800 (Jan), $1,800 (Feb), $1,800 (Mar)
• Distribution: $8,600 (Jan), $8,600 (Feb), $8,600 (Mar)
• Other operating expenses:
• Selling: $2,100 (Jan), $2,100 (Feb), $2,100 (Mar)
• Administration: $500 (Jan), $500 (Feb), $500 (Mar)
• Distribution: $1,600 (Jan), $1,600 (Feb), $1,600 (Mar)
• Depreciation: $800 (Jan), $800 (Feb), $800 (Mar)
• Capital expenditure: $55,000 (Feb)

Total cash outflows: $171,700 (Jan), $196,700 (Feb), $63,815 (Mar)

Net cash flow: -$50,925 (Jan), -$66,300 (Feb), $71,950 (Mar)

Beginning bank balance: $175,000

Ending bank balance: $124,075 (Jan), $57,775 (Feb), $129,725 (Mar)

Note: The calculation assumes no other cash inflows or outflows beyond the information provided. The cash budget is subject to change based on actual business activity and/or unforeseen events.