Question

Court Enterprises Inc. would like to prepare a summary cash budget for March. The following information is available:
• The cash balance at March 1 was estimated to be $3,000.
• March sales, all on account, were estimated to be $50,000. Sales are collected over a two-month period with 65 percent collected in the month of sale and the remainder in the subsequent month. February sales on account were $60,000.
• Inventory purchases are expected to be $20,000 in March. The company pays for one-half of inventory purchases in the month of purchase and the remainder in the subsequent month. February’s purchases were $18,000.
• Cash disbursements for selling and administrative expenses are expected to be $4,000 in March.
• Depreciation expense for March is expected to be $5,000.
• Loan and interest payments for March are expected to be $25,000.
Required:
What is the cash balance at the end of March expected to be?

Answer 1

Answer:

 $8,500

Explanation:

The computation of the cash balance at the end of March is shown below:

Opening Cash Balance            $3,000  

Add: Cash Collection from Sales    $53,500 (($50,000 × 65%) +($60,000 × 35%)

Total Cash Available          $56,500  

Less: Cash Payments    

Inventory         $19,000 (($20,000 × 50%) + ($18000 × 50%)

S&A Expense            $4,000  

Loan & Int Payment $25,000  

Depreciation                   -   (Non Cash Expense)

Closing Cash Balance            $8,500

We simply added the cash receipts and deduct the cash payments to the opening cash balance so that the ending cash balance could come