KK ENTERPRISE was set up by a man and his with some few years ago. The trade in a lot of products. They don’t have enough knowledge in accounting for decision making. They need professional assistance to prepare budgets for the period October to December 2020. The following information has been provided to assist in the budgeting process: · Budgeted monthly sales revenue for 2020 is as follows: October GH¢ 40,000, November GH¢ 70,000, December GH¢ 50,000, January 2018 45,000. Sales are 20% cash and 80% credit. Credit sales are collected over a three- month period, 15% in the month of sale, 70% in the month following sale and 15% in the second month following sale. Total sales revenue in August amounts to GH¢30,000 and September’s total sales revenue amounts to GH¢36,000. Cost of sales is expected to amount to 60% of sales revenue each month. The business maintains its closing inventory levels at 75% of the following month’s cost of sales. Inventory at the beginning of October is expected to amount to GH¢18,000. 50% of inventory purchased is paid in the month of purchase. The remaining 50% is paid for in the month following purchase. As at 30 September 2020, amount owed for purchases are GH¢11,700. A grant of GH¢20,000 is expected to be received in mid-October.  A second- hand van which cost GH¢8,000 three years ago is expected to be sold in December 2020 for GH¢3,000. At this time the expected net book value of the van is GH¢1,800.  Equipment costing GH¢4,500 will be purchased and paid for in November 2020. The equipment will be depreciated on a straight- line basis over three years. Operating expenses are paid as incurred. These have been estimated as follows: GH¢ October 12,800 November 18,900 December 14,600. The above figures include depreciation on existing assets of GH¢2,000 per month. The cash balance on 1 October is expected to amount to GH¢8,000.   Required: As professional accountant calculates the purchases figure for each month from October 2020 to December 2020.                                                                                                                    Prepare a cash budget on a monthly basis and in total for the period October 2020 to December 2020.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
icon
Concept explainers
Question

KK ENTERPRISE was set up by a man and his with some few years ago. The trade in a lot of products. They don’t have enough knowledge in accounting for decision making. They need professional assistance to prepare budgets for the period October to December 2020.

The following information has been provided to assist in the budgeting process: · Budgeted monthly sales revenue for 2020 is as follows: October GH¢ 40,000, November GH¢ 70,000, December GH¢ 50,000, January 2018 45,000.

Sales are 20% cash and 80% credit. Credit sales are collected over a three- month period, 15% in the month of sale, 70% in the month following sale and 15% in the second month following sale. Total sales revenue in August amounts to GH¢30,000 and September’s total sales revenue amounts to GH¢36,000. Cost of sales is expected to amount to 60% of sales revenue each month. The business maintains its closing inventory levels at 75% of the following month’s cost of sales. Inventory at the beginning of October is expected to amount to GH¢18,000. 50% of inventory purchased is paid in the month of purchase. The remaining 50% is paid for in the month following purchase. As at 30 September 2020, amount owed for purchases are GH¢11,700. A grant of GH¢20,000 is expected to be received in mid-October.  A second- hand van which cost GH¢8,000 three years ago is expected to be sold in December 2020 for GH¢3,000. At this time the expected net book value of the van is GH¢1,800.  Equipment costing GH¢4,500 will be purchased and paid for in November 2020. The equipment will be depreciated on a straight- line basis over three years. Operating expenses are paid as incurred. These have been estimated as follows: GH¢ October 12,800 November 18,900 December 14,600. The above figures include depreciation on existing assets of GH¢2,000 per month. The cash balance on 1 October is expected to amount to GH¢8,000.

 

Required:

  1. As professional accountant calculates the purchases figure for each month from October 2020 to December 2020.

                                                                                                                  

  1. Prepare a cash budget on a monthly basis and in total for the period October 2020 to December 2020.                                                                                             

show working

Expert Solution
steps

Step by step

Solved in 3 steps with 5 images

Blurred answer
Knowledge Booster
Budgeting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education