Question

Rainbow, Inc. began operations on January 1 of the current year with a $13,000 cash balance. Forty Five percent of sales are collected in the month of sale; 55% are collected in the month following sale. Similarly, 15% of purchases are paid in the month of purchase, and 85% are paid in the month following purchase. The following data apply to January and February: January February Sales $ 45,000 $ 65,000 Purchases 35,000 50,000 Operating expenses 8,000 10,000 If operating expenses are paid in the month incurred and include monthly depreciation charges of $3,500, determine the change in Rainbow’s cash balance during February.

Answer 1

$10,250

Step-by-step explanation:

cash account January:

January 1 = $13,000

cash collected in January = $20,250

purchases paid in January = ($5,250)

operating expenses (not including depreciation) = ($4,500)

Ending cash balance January 31 = $23,500

cash account February:

February 1 = $23,500

cash collected from January sales = $24,750

cash collected from February sales = $29,250

January purchases paid = ($29,750)

February purchases paid = ($7,500)

operating expenses (not including depreciation) = ($6,500)

Ending cash balance February 28 = $33,750

change in Rainbow’s cash balance during February = $33,750 - $23,500 = $10,250