Colter Company prepares monthly cash budgets. Relevant data from operating budgets for 2014 are: All sales are on account. Collections
All sales are on account. Collections are expected to be 50% in the month of sale, 30% in the first month following the sale, and 20% in the second month following the sale. Sixty percent (60%) of direct materials purchases are paid in cash in the month of purchase, and the balance due is paid in the month following the purchase. All other items above are paid in the month incurred except for selling and administrative expenses that include $1,000 of depreciation per month.
1. Credit sales: November 2013, $250,000; December 2013, $320,000.
2. Purchases of direct materials: December 2013, $100,000.
3. Other receipts: Januarycollection of December 31, 2013, notes receivable $15,000; Februaryproceeds from sale of securities $6,000.
4. Other disbursements: Februarypayment of $6,000 cash dividend. The companys cash balance on January 1, 2014, is expected to be $60,000. The company wants to maintain a minimum cash balance of $50,000.
(a) Prepare schedules for
(1) Expected collections from customers and
(2) Expected payments for direct materials purchases for January and February.
(b) Prepare a cash budget for January and February in columnarform.
A cash budget is an estimation of the cash flows for a business over a specific period of time. These cash inflows and outflows include revenues collected, expenses paid, and loans receipts and payment. Its primary purpose is to provide the...
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