Question No. 1
Pokemon House has budgeted sales revenues as follows:
June July August
Credit sales $85,000 $ 80,000 $ 72,000
Cash sales 14,000 25,000 32,000
Total sales $99,000 $105,000 $104,000
Past experience indicates that 70% of the credit sales will be collected in the month of sale and
the remaining 30% will be collected in the following month. Purchases of inventory are all on
credit and 60% is paid in the month of purchase and 40% in the month following purchase.
Budgeted inventory purchases are:
Other cash disbursements budgeted: selling and administrative expenses of $14,000 each month,
dividends of $30,000 will be paid in July, and purchase of a computer in August for $3,000 cash.
The company wishes to maintain a minimum cash balance of $20,000 at the end of each month.
The company borrows money from the bank at 9% interest if necessary to maintain the minimum
cash balance. Borrowed money is repaid in months when there is an excess cash balance. The
beginning cash balance on July 1 was $25,000. All amounts borrowed during a month are
borrowed on the first day. The loan balance as of July 1 is $26,000.
Prepare, in good form and with appropriate titles, a cash budget for the month of July. Show all
supporting calculations clearly.