REQUIRED:The business needs to have a sense of its future cash inflows and outflows for the quarter and therefore requires the preparation of the following:A schedule of budgeted cash collections for trade receivables for each of the months January to March. A schedule of expected cash disbursements for accounts payable for each of the months January to March.A cash budget, with a total column, for the quarter ending March 31, 2023, showing the expected cash receipts and payments for each month and the ending cash balance for each of the three months, given that no financing activities took place.SHOW THE WORKINGS Varsity Supplies & Things is a family-owned store. The business is now approaching the end ofthe year and is desirous of identifying its expected cash inflows and outflows for the first quarter ofthe new year. You are the management accountant of the entity and have been tasked to preparethe cash budget for the business for the quarter ending March 31, 2023. The following data isavailable:(i)(ii)(iii)(iv)(v)(vi)Extracts from the sales and purchases budgets are as follows:MonthCashSalesOn2022 2023SalesAccount$480,000$600,000$650,000$700,000$800,000November 2022December 2022January 2023February 2023March 2023$142,100$165,500$171,475$144,940$236,720CashPurchases$25,800$44,625$30,400$55,10055% in the month of sale35% in the first month following the sale8% in the second month following the saleThe remaining 2% is expected to be uncollectibleAn analysis of the records shows that trade receivables (accounts receivable) are settledaccording to the following credit pattern, in accordance with the credit terms 4/30, n90:PurchasesOnAccount$345,000$380,000$400,000$480,000$540,000Accounts payable are settled as follows, in accordance with the credit terms 2/30, n60:85% in the month in which the inventory is purchased15% in the following monthThe management of Varsity Supplies & Things has negotiated with a tenant to sublet officespace to her beginning February 1. The rental is expected to be $576,000 per annum. Thefirst month's rent along with one month's safety deposit is expected to be collected onFebruary 1. Thereafter, monthly rental income becomes due at the beginning of eachmonth.Office Furniture & Fixtures, which is estimated to cost $350,000, will be purchased inFebruary. The manager has made arrangement with the suppliers to make a cash deposit of40% upon signing of the agreement in February. The balance will be settled in five (5) equalmonthly instalments beginning March of 2023.The management of Varsity Supplies & Things is in the process of upgrading its fleet ofmotor vehicles. During February the business expects to sell an old delivery motor van thatcost $720,000 at a loss of $45,000 to an employee. Accumulated depreciation on this motorvan at that time is expected to be $375,000. The employee will be allowed to pay a depositequal to 50% of the selling price in February; the balance will be settled in two equalamounts in March & April of 2023.(vii) Fixed operating expenses which accrue evenly throughout the year, are estimated to be$2,088,000 per annum, which include depreciation on non-current assets of $504,000 perannum and are expected to be settled monthly.(viii) Other operating expenses which accrue evenly throughout the year are expected to be$672,000 per annum and will be settled monthly.Continued.. Continued..(ix)A long-term bond purchased by Varsity Supplies & Things two (2) years ago, with a facevalue of $450,000 will mature on January 15, 2023. To meet the financial obligations of thebusiness, management has decided to liquidate the investment upon maturity. On that datesemi-annual interest computed at a rate of 81% per annum is also expected to be collected(x)(xi)(xii)As part of its investing activities, the management of Varsity Supplies & Things has justconcluded an expansion project relating to the business's storage facilities. The projectrequired capital outlay of $1,600,000 and was funded by a loan from a family member, whois a silent partner in the business. $320,000 of the principal along with interest of $35,000will become due and payable on January 25, 2023.Wages and salaries are expected to be $3,384,000 per annum and will be paid monthly.The cash balance on March 31, 2023, is expected to be an overdraft of $248,000

The cash budget is the estimation of total receipt and payment during the given period. It may be…

Answered: REQUIRED: The business needs to have a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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REQUIRED:

The business needs to have a sense of its future cash inflows and outflows for the quarter and therefore requires the preparation of the following:

A schedule of budgeted cash collections for trade receivables for each of the months January to March.
A schedule of expected cash disbursements for accounts payable for each of the months January to March.
A cash budget, with a total column, for the quarter ending March 31, 2023, showing the expected cash receipts and payments for each month and the ending cash balance for each of the three months, given that no financing activities took place.

SHOW THE WORKINGS

Varsity Supplies & Things is a family-owned store. The business is now approaching the end of
the year and is desirous of identifying its expected cash inflows and outflows for the first quarter of
the new year. You are the management accountant of the entity and have been tasked to prepare
the cash budget for the business for the quarter ending March 31, 2023. The following data is
available:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Extracts from the sales and purchases budgets are as follows:
Month
Cash
Sales
On
2022 2023
Sales
Account
$480,000
$600,000
$650,000
$700,000
$800,000
November 2022
December 2022
January 2023
February 2023
March 2023
$142,100
$165,500
$171,475
$144,940
$236,720
Cash
Purchases
$25,800
$44,625
$30,400
$55,100
55% in the month of sale
35% in the first month following the sale
8% in the second month following the sale
The remaining 2% is expected to be uncollectible
An analysis of the records shows that trade receivables (accounts receivable) are settled
according to the following credit pattern, in accordance with the credit terms 4/30, n90:
Purchases
On
Account
$345,000
$380,000
$400,000
$480,000
$540,000
Accounts payable are settled as follows, in accordance with the credit terms 2/30, n60:
85% in the month in which the inventory is purchased
15% in the following month
The management of Varsity Supplies & Things has negotiated with a tenant to sublet office
space to her beginning February 1. The rental is expected to be $576,000 per annum. The
first month's rent along with one month's safety deposit is expected to be collected on
February 1. Thereafter, monthly rental income becomes due at the beginning of each
month.
Office Furniture & Fixtures, which is estimated to cost $350,000, will be purchased in
February. The manager has made arrangement with the suppliers to make a cash deposit of
40% upon signing of the agreement in February. The balance will be settled in five (5) equal
monthly instalments beginning March of 2023.
The management of Varsity Supplies & Things is in the process of upgrading its fleet of
motor vehicles. During February the business expects to sell an old delivery motor van that
cost $720,000 at a loss of $45,000 to an employee. Accumulated depreciation on this motor
van at that time is expected to be $375,000. The employee will be allowed to pay a deposit
equal to 50% of the selling price in February; the balance will be settled in two equal
amounts in March & April of 2023.
(vii) Fixed operating expenses which accrue evenly throughout the year, are estimated to be
$2,088,000 per annum, which include depreciation on non-current assets of $504,000 per
annum and are expected to be settled monthly.
(viii) Other operating expenses which accrue evenly throughout the year are expected to be
$672,000 per annum and will be settled monthly.
Continued..

Continued..
(ix)
A long-term bond purchased by Varsity Supplies & Things two (2) years ago, with a face
value of $450,000 will mature on January 15, 2023. To meet the financial obligations of the
business, management has decided to liquidate the investment upon maturity. On that date
semi-annual interest computed at a rate of 81% per annum is also expected to be collected
(x)
(xi)
(xii)
As part of its investing activities, the management of Varsity Supplies & Things has just
concluded an expansion project relating to the business's storage facilities. The project
required capital outlay of $1,600,000 and was funded by a loan from a family member, who
is a silent partner in the business. $320,000 of the principal along with interest of $35,000
will become due and payable on January 25, 2023.
Wages and salaries are expected to be $3,384,000 per annum and will be paid monthly.
The cash balance on March 31, 2023, is expected to be an overdraft of $248,000

Definition Definition Estimate of an organization's cash flow for a future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future.

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Another team member who is preparing the Budgeted Balance Sheet for the business for
the same quarter ending March 31, 2023 and has asked you to furnish him with the figures
for the expected trade receivables and payables to be included in the statement. Is that a
reasonable request? If yes, what should these amounts be?

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