Problem 9-23 Schedule of Expected Cash Collections; Cash Budget [LO2, LO8]

Herbal Care Corp. a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales occur. The company has requested a $39,000, 90-day loan from its bank to help meet cash requirements during the quarter. Since Herbal Care has experienced difficulty in paying off its loans in the past, the loan officer at the bank has asked the company to prepare a cash budget for the quarter. In response to this request, the following data have been assembled:


a.
On July 1, the beginning of the third quarter, the company will have a cash balance of $33,000.

b.
Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account):




May (actual)
$
270,000

June (actual)
$
480,000

July (budgeted)
$
530,000

August (budgeted)
$
740,000

September (budgeted)
$
400,000


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Past experience shows that 24% of a month’s sales are collected in the month of sale, 68% in the month following sale, and 1% in the second month following sale. The remainder is uncollectible.


c.
Budgeted merchandise purchases and budgeted expenses for the third quarter are given below:


July
August
September

Merchandise purchases
$
233,000
$
350,000
$
173,000

Salaries and wages
$
25,000
$
36,000
$
36,000

Advertising
$
127,000
$
131,000
$
71,000

Rent payments
$
7,600
$
7,000
$
8,100

Depreciation
$
9,100
$
8,700
$
9,700


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Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30, which will be paid during July, total $170,000.


d.Equipment costing $9,600 will be purchased for cash during July.

e.In preparing the cash budget, assume that the $39,000 loan will be made in July and repaid in September. Interest on the loan will total $1,000.


Requirement 1:

Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total
Please tell me how to calculate sale for May and June, it is not budgeted, but actual, I put actual, but it is not right. Just tell me what will be the sale of May. I am just stuck on it, rest of the parts are done. Please help me:confused::confused::confused::confused:

If you have done the workings for the rest of the problem, it should be clear to you as to how to go about with May and June Sales. In July you will collect 1% of May Sales and 68% of June Sales. In August you will collect 1% of June Sales. Try this out and you should be home

if you have done the workings for the rest of the problem, it should be clear to you as to how to go about with may and june sales. In july you will collect 1% of may sales and 68% of june sales. In august you will collect 1% of june sales. Try this out and you should be home

Thank you very very much. I tried this and it worked

What about if he manage to get overdraft loan from a bank. How tu put the entry in the cash budget. Is it an inflow or outflow ?

This is an old thread an assignment it does not call for you to add additional steps