Question

Tierney Enterprises is constructing its cash budget. Its budgeted monthly sales are $5,000, and they are constant from month to month. 40% of its customers pay in the first month and take the 2% discount, while the remaining 60% pay in the month following the sale and do not receive a discount. The firm has no bad debts. Purchases for next month's sales are constant at 50% of projected sales for the next month. "Other payments," which include wages, rent, and taxes, are 25% of sales for the current month. Construct a cash budget for a typical month and calculate the average net cash flow during the month.

Answer 1

To construct a cash budget for Tierney Enterprises, monthly sales, collections, purchases, and other payments are considered. The firm collects 40% of sales with a 2% discount in the first month and the remaining 60% in the following month without a discount. The average net cash flow for a typical month is calculated as $1,210.

Step-by-step explanation:

To construct a cash budget for Tierney Enterprises, we need to factor in sales, discounts, collections, purchases, and other payments. Let's calculate the average net cash flow during a typical month:

• Sales: $5,000 (monthly sales, constant month to month)
• Cash Collection: 40% of customers pay in the first month taking a 2% discount, while the remaining 60% pay in the following month without a discount.
  
  Cash collected in the first month: 40% of $5,000 - 2% discount = $1,960.
  
  Cash collected in the second month: 60% of $5,000 = $3,000.
• Purchases: 50% of projected sales for the next month = 50% of $5,000 = $2,500.
• Other payments: 25% of sales for the current month = 25% of $5,000 = $1,250.

Now we can calculate the average net cash flow:
Net Cash Flow = Cash collected - Purchases - Other payments

For the first month: $1,960 + $3,000 - $2,500 - $1,250 = $1,210.

This is the average net cash flow for Tierney Enterprises for a typical month.

Answer 2

Net cash flow $1,210

Step-by-step explanation:

Budgeted nonthly sales $5,000

Constant monthly purchase 50%

Other payments: 25%

Sales Month, Next Month

Payment pattern: 40% 60%

Discount: 2%

Last month; Current month; Next month

CASH BUDGET:

Sales $5,000 $5,000 $5,000

Collections (same month's sales)

[ 0.40 ×$5,000 ×(1- 0.02) ] $1,960

Collections (last month's sales)

( 0.60 ×$5,000 ) $3,000

Total collections $4,960

Purchases payments 2,500

Add Other payments 1,250

Total payments $3,750

Net cash flow $1,210

(Total collections $4,960-Total payments $3,750 )