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The owner of a building supply company has requested a cash budget for June

Accounting

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The owner of a building supply company has requested a cash budget for June. After examining the records of the company, you find the following:

 

 

a. b.	Cash balance on June 1 is $736. Actual sales for April and May are as follows:
		April		May
	Cash sales	$10,000		$18,000
	Credit sales	28,900		35,000
	Total sales	$38,900		$53,000

 

c.        Credit sales are collected over a three-month period: 40% in the month of sale, 30% in the second month, and 20% in the third month. The sales collected in the third month are sub- ject to a 2% late fee, which is paid by those customers in addition to what they owe. The remaining sales are uncollectible.

 

 

 

 

 

 

d.       Inventory purchases average 64% of a month’s total sales. Of those purchases, 20% are paid for in the month of purchase. The remaining 80% are paid for in the following month.

e.        Salaries and wages total $11,750 per month, including a $4,500 salary paid to the owner.

f.        Rent is $4,100 per month.

g.        Taxes to be paid in June are $6,780.

The owner also tells you that he expects cash sales of $18,600 and credit sales of $54,000 for June. No minimum cash balance is required. The owner of the company doesn’t have access to short-term loans.

Required:

1.       Prepare a cash budget for June. Include supporting schedules for cash collections and cash payments.

2.       CONCEPTUAL CONNECTION Did the business show a negative cash balance for June? Suppose that the owner has no hope of establishing a line of credit for the business, what recommendations would you give the owner for dealing with a negative cash balance?