Sheet 1 Item 2 Sales For July, August, And September

Sheet1item 2sales For July August And September Are Expected To Be

Sheet1 item 2 sales for July, August, and September are expected to be $200,000, $180,000, and $220,000, respectively, for Pasta Company. All sales are on account and are collected 50 percent in the month of the sale and 50 percent in the following month. On average, customers take a 1 percent sales discount in the first month. Raw materials are purchased one month before being needed, and all purchases and expenses are paid for as incurred. Activities for the quarter are expected to be: July, August, September. Pasta Company's raw materials used are $40,000, $36,000, and $44,000 respectively. Estimated cash receipts from utilities and other are $14,000. Salaries for August are $70,000, maintenance and repairs are $18,000, depreciation is $36,000, dividends paid are not specified, and payment on bonds is $8,000. The task is to prepare a cash budget for August based on this information, including estimated cash payments, total cash payments, cash increase or decrease, and other relevant cash flow components.

Paper For Above instruction

The core objective of this assignment is to prepare a comprehensive and accurate cash budget for the month of August for Pasta Company, utilizing provided sales, expense, and activity data. Developing a cash budget involves estimating cash inflows and outflows and analyzing net cash position at the end of the period, which is critical for cash management and financial planning.

Start with estimating the cash inflows for August. Given the sales forecast of $180,000 in August, and the company's 50% collection policy in the sale month, along with collection of 50% from July sales, the cash receipts include 50% of August's sales plus 50% of July's sales. Considering that all sales are on account and that customers take a 1% discount in the first month, the calculation involves adjusting for this discount where applicable.

Next, estimate the cash inflow from prior month sales:

- 50% of July sales collected in August: $200,000 * 50% = $100,000.

- 50% of August sales: $180,000 * 50% = $90,000.

- Adjust for 1% sales discount for August sales collections: $90,000 * (1 - 0.01) = $89,100.

Total estimated cash receipts for August will be:

- 50% of August sales: $89,100

- 50% of July sales: $100,000

- Other cash receipts such as Utilities and other: $14,000

Total inflows = $89,100 + $100,000 + $14,000 = $203,100.

Estimating the cash outflows involves considering the expenses and purchases for August:

- Salaries: $70,000

- Maintenance and repairs: $18,000

- Depreciation is a non-cash expense and thus excluded from cash payments.

- Raw materials purchased in July: Given that raw materials used in August are $36,000, and assuming the inventory system is just-in-time, the purchases align with this usage; thus, $36,000 would be paid in August.

- Dividends paid and bond payments are specified, with bond payments of $8,000.

Total cash payments = Salaries ($70,000) + Maintenance ($18,000) + Raw materials ($36,000) + Bonds ($8,000) = $132,000.

The net cash increase or decrease for August is total inflows minus total outflows:

$203,100 - $132,000 = $71,100.

The beginning cash balance is not provided, but the ending cash balance can be computed once the initial balance is known or assumed. The cash budget will also include other cash inflows or outflows as necessary, but based on the provided data, this estimation provides a detailed snapshot of the company's liquidity position for August.

In conclusion, preparing an accurate cash budget requires careful analysis of receivables, payables, and expense timing. The calculation indicates a positive cash flow for August, suggesting adequate liquidity to meet ongoing obligations. This financial planning tool is essential for Pasta Company to manage its cash effectively, minimize liquidity risks, and support strategic decisions. It also helps highlight the importance of maintaining appropriate cash reserves and monitoring receivable collection policies to optimize working capital.

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