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Prepare Cash Receipts Cash Disbursements And Cash Balance

Question

One Stop Jersey Stop (OSJS) sells sports jerseys. OSJS’s management accountant has gathered the following information for OSJS.

Month

Sales

Purchases

February

$42,000

$17,640

March

$48,000

$20,160

April

$54,000

$22,680

May

$50,000

$21,000

Cash is collected from customers in the following manner:

  • Month of the sale                                         25%
  • First month following the sale                        40%
  • Second month following the sale                    20%
  • Third month following the sale                       10%
  • Uncollectable                                                 5%

Purchases of inventory are paid as follows:

  • Cash payment in month of purchase               40%
  • Cash payment in month following purchase     60%

Additional information:

  • Labor costs equal 19% of sales
  • Other operating costs equal $15,000 per month that amount includes $4,000 of depreciation.
  • Labor and operating costs are paid in the month incurred.
  • The cash balance on April 1 is $4,000.

Required: Show all supporting calculations for credit.

  1. Calculate the amount of cash receipts for March, April and May.
  2. Calculate the amount of cash disbursements for March, April and May.
  3. Calculate the cash balance at May 31.
  4. Discuss two important reasons why OSJS should prepare cash budgets.

 

Total Word Count 229

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