Prepare a cash budget for the months of June

Reference no: EM132738514

Problem - 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. Cash balance on 1 June is $736.

b. Actual sales for April and May are as follows:

April May June

Cash sales $10,000 $18,000 $18,600

Credit sales 28,900 35,000 54,000

Total sales $38,900 $53,000 $72,600

c. Credit sales are collected over a three-month period: 40 per cent in the month of sale, 30 per cent in the second month and 20 per cent in the third month. The remaining sales are uncollectable.

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

h. No minimum cash balance is required. The owner of the company doesn't have access to short-term loans.

Required -

i. Prepare schedules for cash collections and cash payments for the month of May and June.

i. Prepare a cash budget for the months of June.

ii. Did the business show a negative cash balance for June? What recommendations would you give the owner for dealing with a negative cash balance?

Reference no: EM132738514

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