The Following Information Is From Tejas Windowtints Finance

The Following Information Is From Tejas Windowtints Financial Records

The following information is from Tejas WindowTint’s financial records. MonthSalesPurchasesApril$76,000 $47,000 May 74,000 57,000 June 70,000 45,000 July 77,000 63,000 Collections from customers are normally 70 percent in the month of sale, 16 percent in the month following the sale, and 12 percent in the second month following the sale. The balance is expected to be uncollectible. All purchases are on account. Management takes full advantage of the 5 percent discount allowed on purchases paid for by the tenth of the following month.

Purchases for August are budgeted at $65,000, and sales for August are forecasted at $71,000. Cash disbursements for expenses are expected to be $14,800 for the month of August. The company’s cash balance on August 1 was $30,000. Required: Prepare the expected cash collections during August. Prepare the expected cash disbursements during August. Calculate the expected cash balance on August 31.

Paper For Above instruction

The primary objective of this financial planning exercise is to accurately forecast cash flows, which are crucial for maintaining the liquidity and operational stability of Tejas Windowtints. Given the recent sales and purchase data, along with collection and payment patterns, we can develop detailed estimates of cash collections, disbursements, and ending cash balance for August. This analysis will assist management in ensuring the company maintains adequate cash reserves for ongoing expenses and future investments.

Expected Cash Collections During August

Cash collections from customers are based on a percentage of sales made in the current and previous months. The collection pattern specifies that 70% of sales are collected in the month of sale, 16% in the following month, and 12% in the second month after sale. Uncollectible amounts are not part of the cash flow.

Using sales data:

- July sales = $77,000,

- August sales forecast = $71,000.

Cash collections for August are calculated as follows:

- 70% of August sales: 0.70 × $71,000 = $49,700,

- 16% of July sales: 0.16 × $77,000 = $12,320,

- 12% of June sales: 0.12 × $70,000 = $8,400.

Total expected cash collections in August = $49,700 + $12,320 + $8,400 = $70,420.

Expected Cash Disbursements During August

Cash disbursements include payments for purchases, expenses, and other cash outflows. Purchases are on account, with management taking a 5% discount if paid by the 10th of the following month.

August purchases are budgeted at $65,000. These are typically paid in the current month, and if paid early (by the 10th), a discount applies.

Assuming the company takes advantage of the discount for early payment:

- Discount = 5% of $65,000 = $3,250,

- Payment with discount = $65,000 - $3,250 = $61,750.

Additionally, cash expenses for August are forecasted at $14,800.

Total cash disbursements for August = $61,750 (purchases with discount) + $14,800 (expenses) = $76,550.

Expected Cash Balance on August 31

Starting cash balance on August 1 is $30,000. To determine the ending cash balance:

- Add expected cash collections: $70,420,

- Subtract total disbursements: $76,550.

Ending cash balance = $30,000 + $70,420 - $76,550 = $23,870.

Therefore, Tejas Windowtints is expected to have a cash balance of $23,870 at the end of August, indicating a slight decrease but sufficient liquidity to cover upcoming obligations.

Conclusion

The cash flow forecast for August demonstrates robust collections due to recent sales and efficient management of purchase payments through discounts. Maintaining a close watch on disbursements and receivables will be essential for sustaining liquidity. The company’s forecasted ending cash balance suggests it can meet operational needs while potentially maintaining a buffer for unforeseen expenses.

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