Reference no: EM132837021

Green Friends Ltd is a garden design and landscaping business that started operations on 1 September 2020. The following information has been provided by the firm.

In September, cash sales were $17,500 and credit sales $32,500. Total expected sales in the following three months are:

$70,000 in October;

$78,000 in November; and

$82,000 in December

• The company expects 35% of the sales of each month to be cash sales and the remainder credit sales. Credit sales are expected to be collected 40% in the month of the sale, 30% in the next month, and 30% in the following month.

All purchases of inventory are on credit. Purchases of inventory in September were $40,000. The company estimates purchases in the following three months to be: $26,000 in October, $30,000 in November and $32,000 in December. Purchases are paid 80% in the month of purchase, and 20% in the following month.

1. Wages expense is estimated to be $19,000 in October, $20,000 in November and $22,000 in December, paid in cash.
2. Other operating expenses are budgeted to be $18,000 in October, $19,000 in November and $20,000 in December, paid in cash.
3. Depreciation expenses of $1,100 per month are expected.
4. The cost of sales is estimated as 45% of sales revenue each month.
5. On 1 September, equipment costing $12,000 was purchased and paid in cash.
6. Cash estimated from issue of shares in November: $25,000
7. The cash balance at 1st October 2020 was $1,500

Problem 1: Cash budget for October, November and December 2020

Problem 2:  What is the amount of accounts payable at 31st December 2020?

Problem 3: How can you improve the cash budget?