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Solution Library
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.
- Calculate the amount of cash receipts for March, April and May.
- Calculate the amount of cash disbursements for March, April and May.
- Calculate the cash balance at May 31.
- Discuss two important reasons why OSJS should prepare cash budgets.
Total Word Count 229
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