Question - Williams Company has budgeted sales revenues as follows:

Credit sales

May 300,000

June 540,000

July 400,000

August 285,000

Past experience indicates that 70% of the credit sales will be collected in the month of sale, 20 % will be collected in the first month following the sale and the remaining 10% will be collected in the following month. Purchases of inventory are all on credit and 45% are paid in the month of purchase and 55% in the month following purchase. Budgeted inventory purchases are:

June $300,000

July 250,000

August 105,000

Other cash disbursements budgeted: (a) selling and administrative expenses of $48,000 each month, (b) dividends of $103,000 will be paid in July, and (c) purchase of investments in August for $30,000 cash.

The company wishes to maintain a minimum cash balance of $50,000 at the end of each month. The company borrows money from the bank at 8% 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 $50,000. Assume that borrowed money in this case is for one month (ignore interest).

Instructions -

(a) Prepare separate schedules for expected collections from customers and expected payments for purchases of inventory.

(b) Prepare a cash budget for the months of July and August.