I need help with the below problem. I do not understand how to prepare expected cash collections/disbursments.
Calgon Products a distributor of organic beverages needs a cash budget for September. The following information is available:
a. The cash balance at the beginning of September is $9,000
b. Actual sales for July and August and expected sales for September are as follows:
July August September
Cash Sales – 6500 5250 7400
Sales on a/c 20000 30000 40000
Total sales 26500 35250 47400
Sales on a/c are collected over a 3 month period as follows: 10% collected in the month of sale, 70% collected in the month following sales and 18% collected in the second month following sale. The remaining 2% is uncollectible
c. Purchases of inventory will total $25000 for September. 20% of a months inventory purchases are paid for during the month of purchase. The accounts payable remaining from August’s inventory purchases total $16000 all of which will be paid in September.
d. Selling and administrative expenses are budgeted at $13000 for September. Of this amount $4000 is for depreciation.
e. Equipment costing $18000 will be purchased for cash during September and dividends totaling $3000 will be paid during the month.
f. The company maintians a minimum cash balance of $5000. An open line of credit is available from the company’s bank to bolster the cash position as needed.
1. Prepare a schedule of expected cash collections for September.
2. Prepare a schedule of expected cash disbursements during September for inventory purchases.
3. Prepare a cash budget for September. Indicate in the financing section any borrowing that will be needed during September.
Excel file contains a schedule of expected cash collections , expected cash disbursements and cash budget for September.