CASE 2 (20 points)

The following data are available for the budget preparation of Russel Corporation:

July August

September

T otal sales

Cash purchases

Credit purchases

200 220 180 70 80 60 40 30 40

Labor and administrative expenses 30 30 30

T axes, interest, and dividends 10 10 10

Capital expenditures 100 0 0 Additional information:

• Half the companys sales are transacted on a cash basis. The other half are paid for with a 1-month delay.

• The company pays all of its credit purchases with a 1-month delay.

• Credit purchases in June were 30.

• T otal sales in June were 180.

• Cash balance at 1 July was 100. Instructions:

  1. a) Explain the role of cash budget. (5 points)

  2. b) Using the above information, complete the following cash budget. (15 points) Note: You need to show separately your detailed calculations for cash collections

and payments for purchases.