Q17SE - Horngren'S Financial And Managerial Accounting

Question

Preparing a financial budget—cash budget 

Wilson Company has \(11,000 in cash on hand on January 1 and has collected the following budget data: 

                                                                           January                      February Sales                                                                \) 1,400,000                  \( 710,000 Cash receipts from customers                            851,420                    871,800 Cash payments for merchandise inventory        561,100                   532,310

Assume Wilson has cash payments for selling and administrative expenses including salaries of \)55,000 plus commissions of 2% of sales, all paid in the month of sale. The company requires a minimum cash balance of $8,500. Prepare a cash budget for January and February. Will Wilson need to borrow cash by the end of February?

Step-by-Step Solution

Answer

Answer

The total ending cash balance is $218,320 in the month of January and $488,610 in the month of February.

Step 1: Preparation of cash budget

Particulars	January	February
Beginning cash balance	$11,000	$218,320
Cash receipts	$851,420	$871,800
Cash available	$862,420	$1,090,120
Cash payments:
Cash payments for merchandise inventory	$561,100	$532,310
Selling and administrative expenses	$55,000	$55,000
Commission	$28,000	$14,200
Total cash payments	$644,100	$601,510
Ending cash balance before financing	$218,320	$488,610

Step 2: Explanation

No, Wilson need not to borrow money by the end of February because it already has sufficient excess cash.