Reference no: EM13590545

The Gannon Company has budgeted sales revenues as follows:

	June	July	August
Credit sales	$27,000	$29,000	$18,000
Cash sales	18,000	51,000	39,000
Total sales	$45,000	$80,000	$57,000

Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month.

Purchases of inventory are all on credit and 50% is paid in the month of purchase and 50% in the month following purchase. Budgeted inventory purchases are:

     June             $60,000
     July               50,000
     August           21,000

Other cash disbursements budgeted: (a) selling and administrative expenses of $9,500 each month, (b) dividends of $20,700 will be paid in July, and (c) purchase of a computer in August for $6,000 cash.

The company MUST maintain a minimum cash balance of $10,000 at the end of each month. The company borrows money from the bank at 9% per year interest if necessary to maintain the minimum cash balance of $10,000. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July 1 was $10,000 of which none is borrowed.

Instructions:
Prepare a cash budget for the months of July and August. Prepare separate schedules for expected collections from customers and expected payments for purchases of inventory.