A retail company is preparing their budget for the coming year, commencing 1 January. The following information has been assembled: All sales are on credit. 60% of customer accounts are collected in the month of the sale, 35% in the following month, and 5% are considered uncollectable. Management has estimated that of the amount expected to be outstanding from customers at the end of the current year (31 December), only 20% will be collected in January with the remainder being uncollectable. 70% of the goods purchased are paid for in the month of purchase and the remaining 30% is paid in the following month. At the end of this year, the following balances are expected: cash $20 000; Accounts receivable $55 000; and, accounts payable $22 000. The company maintains a minimum cash balance of $20 000 at all times, and sometimes needs to borrow to achieve this. Assume that bank financing is available in multiples of $1 000 at 8% interest rate per annum. Borrowing takes place at the beginning of each month and repayment occurs at the end of the month. Interest is repaid at the same time as the principal and is based on the amount of the principal repaid at that time. Additional budget data: 31 January 28 February 31 March Sale revenue $150 000 $180 000 $185 000 Purchases 90 000 100 000 140 000 Salaries 31 000 24 000 45 000 Required: Prepare a schedule: of budgeted cash receipts for the three-month period, from January to March Of budgeted cash disbursements for the three-month period, from January to March. That summarises the company’s cash balances at the end of the three-month period, and includes any bank financing and repayments needed to maintain the minimum cash balance
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
A retail company is preparing their budget for the coming year, commencing 1 January. The following information has been assembled:
- All sales are on credit. 60% of customer accounts are collected in the month of the sale, 35% in the following month, and 5% are considered uncollectable. Management has estimated that of the amount expected to be outstanding from customers at the end of the current year (31 December), only 20% will be collected in January with the remainder being uncollectable.
- 70% of the goods purchased are paid for in the month of purchase and the remaining 30% is paid in the following month.
- At the end of this year, the following balances are expected: cash $20 000;
Accounts receivable $55 000; and, accounts payable $22 000. - The company maintains a minimum cash balance of $20 000 at all times, and sometimes needs to borrow to achieve this. Assume that bank financing is available in multiples of $1 000 at 8% interest rate per annum. Borrowing takes place at the beginning of each month and repayment occurs at the end of the month. Interest is repaid at the same time as the principal and is based on the amount of the principal repaid at that time.
- Additional budget data:
|
31 January |
28 February |
31 March |
Sale revenue |
$150 000 |
$180 000 |
$185 000 |
Purchases |
90 000 |
100 000 |
140 000 |
Salaries |
31 000 |
24 000 |
45 000 |
Required:
Prepare a schedule:
- of budgeted cash receipts for the three-month period, from January to March
- Of budgeted cash disbursements for the three-month period, from January to March.
That summarises the company’s cash balances at the end of the three-month period, and includes any bank financing and repayments needed to maintain the minimum cash balance
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