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Chapter 10 - Strategy and the Master Budget
10-26 Budgeted Cash Receipts and Disbursements (30 minutes)
1. Budgeted Cash Receipts:
November:
Cash sales = $120,000
Collection of accounts receivable:
From Oct sales:
($100,000 × 0.95) × 0.40 × 0.75 × 0.985 = $28,073
December:
Cash sales = $80,000
Collection of accounts receivable:
From Nov sales:
($150,000 × 0.95) × 0.40 × 0.75 × 0.985 = $42,109
($150,000 × 0.95) × 0.40 × 0.25 = $14,250
2. Budgeted Cash Disbursements:
November:
From Nov sales:
December:
From Dec sales:
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Education.
Chapter 10 - Strategy and the Master Budget
10-27 Cash Disbursements Budget (30-35 minutes)
1. Budgeted cash payments for merchandise purchases:
a. February:
b. March:
2. Budgeted cash payments for merchandise purchases:
a. February:
20% (January) × $150,000 × 0.98 = $29,400
80% (February) × $120,000 × 0.98 =$94,080 $123,480
b. March:
3. The financial cost of not taking advantage of the early-payment discount can be
approximated by the following formula:
Opportunity cost (%) = [discount % ÷ (1 – discount %)] × [365 ÷ no. of extra
days allowed if discount is not taken]
Basically, if you choose not to take the early-payment discount, you are giving up
a 2% discount (on the net amount) in return for an extra 15 days in which to pay.
There are 24.33 (365 ÷ 15) 15-day periods in a year. Note that in the first term of
Chapter 10 - Strategy and the Master Budget
10-28 Cash Budget—Financing Effects (30 minutes)
Hartz & Co.
Cash Budget
For November and December, 2016
November December
Cash balance, beginning $75,000 $99,000
Plus: Cash receipts $525 ,000 $450 ,000
Total cash available (A) $600 ,000 $549 ,000
Cash disbursements, prior to financing (B) $450,500 $550,000
Plus: Minimum cash balance (given) $50 ,000 $50 ,000
Total cash needed (C) $500 ,500 $600 ,000
Excess (deficiency of) cash, before
financing effects (D) = (A) − (C) $99 ,500 ($51 ,000)
Financing:
Short-term borrowing, beginning of month -0- $52,000
Repayments (long-term loan principal),
end of month ($50,000) -0-
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Education.
Chapter 10 - Strategy and the Master Budget
10-29 Cash Budget (20 minutes)
Marsha, Inc.
Cash Budget for Year 2016
Beginning cash balance $15,000
Net cash flow from operations:
Cash inflows:
Cash collections from customers $145,000
Cash outflows:
Direct materials purchases (25,000)
Operating expenses $50,000
Less: Depreciation 20,000 (30,000)
Payroll (75,000)
Income taxes (6,000) 9,000
Investing activities:
Purchase of machinery (30,000)
Financing activities:
Cash excess (shortage) before financing ($6,000)
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Chapter 10 - Strategy and the Master Budget
10-30 Budgeted Cash Receipts: Cash Discounts Allowed on Receivables (45
Minutes)
1. Breakdown of Cash/
Sales Data Amount Bank Credit-Card Sales
June $60,000 Cash sales 40%
July $80,000 Credit cards 60%
August $90,000
September $96,000 Bank charges 3%
October $88,000
Credit sales: Collection of Credit Sales
Current month 20%
Sales Breakdown and Terms 1st month 50%
Cash and bank credit card sales 25% 2nd month 15%
Credit sales 75% 3rd month 12%
Terms 1/eom, n/45 Late charge/month 2%
Discount (if paid by eom) 1%
Schedule of Cash Receipts: September & October
10-30 (Continued)
10-15
Education.
2. Appropriate accounting treatment for:
a) Bank service (collection) fees: these can be considered an offset to gross sales
and thus can be reflected as a deduction in determining “net sales” (see text
and Administrative Expenses” on the Income Statement).
b) Cash discounts allowed on collection of receivables: these can be considered a
Note to Instructor: An Excel spreadsheet solution file is embedded in this document. You
can open the spreadsheet “object” that follows by doing the following:
1. Right click anywhere in the worksheet area below.
2. Select “Worksheet Object,” then select “Open”
3. To return to the Word document, select “File” and then “Close and return to...”
while you are in the spreadsheet mode. The screen should then return you to
the Word document.
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Education.
Ex. 10-30 7e.xlsx
Chapter 10 - Strategy and the Master Budget
10-31 Cash Receipts and Payments (30-40 minutes)
1. Budgeted cash collections in December 2015 from November 2015 credit
sales:
Total credit sales in November $240,000
Percentage collectible × 95%
2. Budgeted total cash receipts in January 2016:
Cash sales in January $ 60,000
Collections from credit sales in January:
Total collectible from credit sales
$180,000 × 95% = $171,000
Percentage to be collected in January × 60% $102,600
3. Budgeted total cash payments in December 2015 for inventory purchases:
Total inventory purchases in November:
For November sales: $320,000 × 0.3 × 0.6 = $ 57,600
For December sales: $460,000 × 0.7 × 0.6 = 193,200 $250,800
Percentage of Nov. purchases to be paid in December ×
75%
Payment in December for purchases in November $188,100
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Chapter 10 - Strategy and the Master Budget
10-18
Education.
10-32 Retailer Budget (50 minutes)
1. Budgeted merchandise purchases: May and June
D. Tomlinson Retail
Budgeted Merchandise Purchases
May and June
May June July
Sales (in units) 11,900 11,400 12,000
Cost per unit × $20 × $20 × $20
Cost of Goods Sold (CGS) $238,000 $228,000 $240,000
Ending inventory (130% of
next month’s CGS) + 296,400 + 312,000
2. Budgeted cash disbursements: June
Budgeted S, G, & A expenses: May June
Sales revenue $357,000 $342,000
S, G, & A expense ratio × 0.15 × 0.15
D. Tomlinson Retail
Budgeted Cash Disbursements, June
May June
Merchandise purchases $ 225,000 $ 243,600
Non-depreciation S, G, & A expenses + 51,550 + 49,300
Total payables $276,550 $292,900
Payment for the current month’s payables (54%) $158,166
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Education.
Chapter 10 - Strategy and the Master Budget
10-32 (Continued)
3. Budgeted cash collections: May
D. Tomlinson Retail
Cash Collections
May
From last month's (April) credit sales
Within the discount period ($363,000) × 60% × 97% = $211,266
After the discount period $363,000 × 25% = 90,750
From credit sales two months ago (i.e., March)
4. Gross and Net Balance of Accounts Receivable (AR) as of May 31
March April May Total
Sales $354,000 $363,000 $357,000
Remaining AR % 6% 15% 100%
* @ 6% of gross sales dollars
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