Study Problem #22-6A in your homework and answer the following questions in your
ID: 2491600 • Letter: S
Question
Study Problem #22-6A in your homework and answer the following questions in your own words. YOU ARE NOT BEING ASKED TO PREPARE A REVISED BUDGET; INSTEAD, ANSWER THE QUESTIONS BASED ON CONCEPT AND YOUR UNDERSTANDING OF HOW THE BUDGET NUMBERS ARE INTERRELATED. ASSUME EACH OF THE FOLLOWING QUESTIONS IS AN INDEPENDENT SITUATION:
a. What would be the impact on the cash budget if 30% (instead of 25%) of credit sales is collected in the month of the sale? (Note this is the only change).
b. What would be the impact on the cash budget, if 90% (instead of 80%) of the merchandise is paid in the month following the purchase?
Problem 22-6A (50 minutes)
ONEIDA COMPANY
Cash Budget
For September, October, and November
September
October
November
Beginning balance...............................
$ 5,000
$ 99,250
$ 69,500
Cash receipts
Collection on accounts receivable*....
159,250
249,250
338,100
Receipts from bank loan.....................
100,000
_______
_______
Total cash available.............................
264,250
348,500
407,600
Cash disbursements
Payments on accounts payable**........
100,000
217,000
228,000
Payroll................................................
20,000
22,000
24,000
Rent....................................................
10,000
10,000
10,000
Other expenses...................................
35,000
30,000
20,000
Repayment on bank loan....................
100,000
Interest on bank loan***......................
________
________
3,000
Total cash disbursements...................
165,000
279,000
385,000
Ending cash balance............................
$ 99,250
$ 69,500
$ 22,600
*** Interest at 12% on $100,000 for 3 months is $3,000.
Supporting schedules
Collections of credit sales*
August
September
October
November
Aug. sales ($215,000)—[25%: 45%: 20%: 9%].........
$ 53,750
$ 96,750
$ 43,000
$ 19,350
Sept. sales ($250,000)—[25%: 45%: 20%]...............
-
62,500
112,500
50,000
Oct. sales ($375,000)—[25%: 45%]..........................
-
-
93,750
168,750
Nov. sales ($400,000)—[25%]...................................
-
-
-
100,000
Total............................................................................
$ 53,750
$159,250
$249,250
$338,100
Payments on credit purchases**
August
September
October
November
Aug. purchases ($125,000)—(0%: 80%: 20%)................................
$ 0
$100,000
$ 25,000
$ -
Sept. purchases ($240,000)—(0%: 80%: 20%)...............................
-
0
192,000
48,000
Oct. purchases ($225,000)—(0%: 80%)...........................................
-
-
0
180,000
Nov. purchases ($200,000)—(0%)...................................................
-
-
-
0
Total....................................................................................................
$ 0
$100,000
$217,000
$228,000
ONEIDA COMPANY
Cash Budget
For September, October, and November
September
October
November
Beginning balance...............................
$ 5,000
$ 99,250
$ 69,500
Cash receipts
Collection on accounts receivable*....
159,250
249,250
338,100
Receipts from bank loan.....................
100,000
_______
_______
Total cash available.............................
264,250
348,500
407,600
Cash disbursements
Payments on accounts payable**........
100,000
217,000
228,000
Payroll................................................
20,000
22,000
24,000
Rent....................................................
10,000
10,000
10,000
Other expenses...................................
35,000
30,000
20,000
Repayment on bank loan....................
100,000
Interest on bank loan***......................
________
________
3,000
Total cash disbursements...................
165,000
279,000
385,000
Ending cash balance............................
$ 99,250
$ 69,500
$ 22,600
Explanation / Answer
Case 1 Cash Budget of sales Month Sales 30% in the month of sale 45% in following month 20% in next to next month 5% in next to next to next Total collection Earlier collection Differece August 215000 64500 64500 53750 10750 Sept 250000 75000 96750 171750 159250 12500 Oct 375000 112500 112500 43000 268000 249250 18750 Nov 400000 120000 168750 50000 10750 349500 338100 11400 Comment: If the comparision is made between the % of collection of earlier and corrent then the conclusion in that the company's cash is coming earlier then before. The extra cash receive by the co. may be utilise for the benefit of co. or the co. may invest such extra cash and may enjoy the benefit of interest. Case2: Cash Budget of purchase Month purchase payment on same month 90% payment on following month 10% in next to next month Total cash paid Earlier payment Difference August 125000 0 0 0 Sept 240000 0 112500 112500 100000 12500 Oct 225000 0 216000 12500 228500 217000 11500 Nov 200000 0 202500 24000 226500 228000 -1500 Comment: If the co. paid more of its dues timely then company liability shall be reduce however co. cash shall also be reduce therefore the cash which could be used by the co. for any other purpose can not be used and even co. shall also loss the benefit of interest etc which it could be received if it invest that money somewhere