SALLAT Household Furnishings & Appliances is a family-owned business. You are the management accountant of the entity and have been given the task of preparing the cash budget for the business for the following: i) Extracts from the Month May June July August September quarter ending September 30, 2022. Your data collection has yielded the sales and purchases budgets are as follows: Cash Sales $75,000 $135,000 $86,800 $105,600 $112,500 Sales On Account $480,000 $600,000 $720,000 $640,000 $800,000 Cash Purchases Purchases On Account $390,000 $36,000 $360,000 $61,700 $450,000 $68,800 $400,000 $77,250 $500,000 ii) An analysis of the records shows that trade receivables (accounts receivable) for sales on account are settled according to the following credit pattern, in accordance with the credit terms 5/30, n90: 50% in the month of sale 35% in the first month following the sale 15% in the second month following the sale iii) Accounts Payable are settled as follows, in accordance with the credit terms – 4/30, n60: 70% in the month in which the inventory is purchased 30% in the following month iv) Computer equipment, which is estimated to cost $350,000, will be acquired in August. The manager has planned with the supplier to make a cash deposit of 50% of the amount upon signing of the agreement in August, with the balance to be settled in four equal monthly instalments, starting in September 2022. v) A treasury bond purchased by the company with a face value of $560,000 is expected to mature on July 20, 2022. To meet the financial obligations of the business the management team has decided to liquidate the investment upon maturity. On that date, quarterly interest computed at a rate of 71⁄2 % per annum is also expected to be collected. vi) Fixed operating expenses, which accrue evenly throughout the year, are estimated to be $1,812,000 per annum [including depreciation on non-current assets of $37,000 per month] and are settled monthly. vii) The management Sallat Household has negotiated with a tenant for rental of storage space beginning on July 1. The rental is expected to be $840,000 per annum and will be paid over by the tenant quarterly in advance. Rental relating to the quarter under review becomes due on July 1. viii) Other operating expenses are expected to be $432,000 per annum and will be settled monthly. ix) Wages and salaries are expected to be $2,304,000 per annum and will be paid monthly. x) In the month of August, furniture & fixtures, which cost $455,000, will be sold to an employee at a loss of $20,000. Accumulated depreciation on the furniture & fixtures at that time is expected to be $305,000. The employee will be allowed to pay a deposit equal to 60% of the selling price in August with the balance settled in two equal amounts in September & October. xi) As part of its investing activities, the management of Sallat Household Furnishings & Appliances is in the process of completing a major addition to the business property, which is estimated to cost $1,200,000, and which is being funded by external borrowing. $420,000 of the principal, along with interest of $14,200 is due to be paid on July 15, 2022. xii) The cash balance on September 30, 2022, is expected to be an overdraft of $147,500. Required: a. Another team member who is preparing the Budgeted Balance Sheet for the business for the same quarter ending September 30, 2022, 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?
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.
SALLAT Household Furnishings & Appliances is a family-owned business. You are the
for the business for the following:
i) Extracts from the Month
May June
July August September
quarter ending September 30, 2022. Your data collection has yielded the sales and purchases budgets are as follows:
Cash Sales
$75,000 $135,000
$86,800 $105,600 $112,500
Sales On Account
$480,000 $600,000
$720,000 $640,000 $800,000
Cash Purchases Purchases On Account
$390,000 $36,000 $360,000
$61,700 $450,000 $68,800 $400,000 $77,250 $500,000
ii) An analysis of the records shows that trade receivables (
50% in the month of sale
35% in the first month following the sale 15% in the second month following the sale
iii) Accounts Payable are settled as follows, in accordance with the credit terms – 4/30, n60: 70% in the month in which the inventory is purchased
30% in the following month
iv) Computer equipment, which is estimated to cost $350,000, will be acquired in August. The manager has planned with the supplier to make a cash deposit of 50% of the amount upon signing of the agreement in August, with the balance to be settled in four equal monthly instalments, starting in September 2022.
v) A treasury bond purchased by the company with a face value of $560,000 is expected to mature on July 20, 2022. To meet the financial obligations of the business the management team has decided to liquidate the investment upon maturity. On that date, quarterly interest computed at a rate of 71⁄2 % per annum is also expected to be collected.
vi) Fixed operating expenses, which accrue evenly throughout the year, are estimated to be $1,812,000 per annum [including depreciation on non-current assets of $37,000 per month] and are settled monthly.
vii) The management Sallat Household has negotiated with a tenant for rental of storage space beginning on July 1. The rental is expected to be $840,000 per annum and will be paid over by the tenant quarterly in advance. Rental relating to the quarter under review becomes due on July 1.
viii) Other operating expenses are expected to be $432,000 per annum and will be settled monthly.
ix) Wages and salaries are expected to be $2,304,000 per annum and will be paid monthly.
x) In the month of August, furniture & fixtures, which cost $455,000, will be sold to an employee at a loss of $20,000. Accumulated depreciation on the furniture & fixtures at that time is expected to be $305,000. The employee will be allowed to pay a deposit equal to 60% of the selling price in August with the balance settled in two equal amounts in September & October.
xi) As part of its investing activities, the management of Sallat Household Furnishings & Appliances is in the process of completing a major addition to the business property, which is estimated to cost $1,200,000, and which is being funded by external borrowing. $420,000 of the principal, along with interest of $14,200 is due to be paid on July 15, 2022.
xii) The cash balance on September 30, 2022, is expected to be an overdraft of $147,500.
Required:
a. Another team member who is preparing the Budgeted Balance Sheet for the business for the same quarter ending September 30, 2022, 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?
Step by step
Solved in 3 steps
