Managerial Accounting
Managerial Accounting
5th Edition
ISBN: 9781259176494
Author: John J Wild, Ken Shaw Accounting Professor
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 7, Problem 30E
To determine

Cash Budget:

It is the prediction of cash inflows and outflows for an entity over a period of time. It is helpful in assessing that the entity has enough cash to operate.

To prepare: Monthly cash budget for the month of April, May, June.

Expert Solution & Answer
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Explanation of Solution

Company C
Cash Budget
Particulars April Amount ($) May Amount ($) June Amount ($)
Beginning cash balance 12,000 12,000 12,279
Add: Cash receipts (Working Note 1) 28,000 36,000 32,000
Total cash available 40,000 48,000 44,279
Less: Cash disbursement (Working Note 2) 32,040 29,600 28,080
Interest expense (working note 3) 20 61 -
Preliminary cash balance 7,940 18,339 16,199
Less: Required ending cash balance 12,000 12,000 12,000
Surplus (4,060) 6,339 4,199
Beginning balance of loan 2,000 6,060 0
Add: Additional loan from bank 4,060 0 0
Less: Repayment of loan 0 6,060 0
Ending loan balance 6,060 0 0
Ending cash balance carried forward next month 12,000 12,279 16,199
Table (1)

Working note:

Company C
Cash Receipts
Particulars April Amount ($) May Amount ($) June Amount ($)
Sales 32,000 40,000 24,000
Cash collection:
Previous sale (50%) 12,000 16,000 20,000
Current sale (50%) 16,000 20,000 12,000
Total 28,000 36,000 32,000
Table (2)

Working note:

Company C
Cash Disbursements
Particulars April Amount ($) May Amount ($) June Amount ($)
Cash payments for merchandise 20,200 16,800 17,200
Sales commission ( sales×10% ) 3,200 4,000 2,400
Shipping ( sales×2% ) 640 800 480
Salaries 5,000 5,000 5,000
Rent 3,000 3,000 3,000
Total 32,040 29,600 28,080
Table (3)

Working note:

Formula to calculate interest expense for the month,

    Interest expense=Beginning balance of loan×1% 

For April

Given,
Beginning balance of loan is $2,000.

Substitute $2,000 for beginning balance.

    Interest expense=$2,000×1% =$20

For May,

Beginning balance of loan $6,060 (calculated).

Substitute $6,060 for beginning balance.

    Interest expense=$6,060×1% =$61

For June,

Beginning balance of loan $0 (calculated).

Substitute $0 for beginning balance.

    Interest expense=$0×1% =$0

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Chapter 7 Solutions

Managerial Accounting

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