Varsity Supplies & Things is a family-owned store. The business is now approaching the end of the year and is desirous of identifying its expected cash inflows and outflows for the first quarter of the new year. You are the management accountant of the entity and have been tasked to prepare the cash budget for the business for the quarter ending March 31, 2023. The following data is available: (1) (11) (III) (iv) (v) (vi) Extracts from the sales and purchases budgets are as follows: Month Sales On 2022-2023 Cash Sales November 2022 $142,100 December 2022 $165,500 $171,475 $144,940 $236,720 January 2023 February 2023 March 2023 Account $480,000 $600,000 $650,000 $700,000 $800,000 Cash Purchases $25,800 $44,625 $30,400 $55,100 55% in the month of sale 35% in the first month following the sale 8% in the second month following the sale The remaining 2% is expected to be uncollectible Purchases On Account $345,000 $380,000 $400,000 $480,000 $540,000 An analysis of the records shows that trade receivables (accounts receivable) are settled according to the following credit pattern, in accordance with the credit terms 4/30, n90: Accounts payable are settled as follows, in accordance with the credit terms 2/30, n60: 85% in the month in which the inventory is purchased 15% in the following month The management of Varsity Supplies & Things has negotiated with a tenant to sublet office space to her beginning February 1. The rental is expected to be $576,000 per annum. The first month's rent along with one month's safety deposit is expected to be collected on February 1. Thereafter, monthly rental income becomes due at the beginning of each month. Office Furniture & Fixtures, which is estimated to cost $350,000, will be purchased in February. The manager has made arrangement with the suppliers to make a cash deposit of 40% upon signing of the agreement in February. The balance will be settled in five (5) equal monthly instalments beginning March of 2023. The management of Varsity Supplies & Things is in the process of upgrading its fleet of motor vehicles. During February the business expects to sell an old delivery motor van that cost $720,000 at a loss of $45,000 to an employee. Accumulated depreciation on this motor van at that time is expected to be $375,000. The employee will be allowed to pay a deposit equal to 50% of the selling price in February; the balance will be settled in two equal amounts in March & April of 2023.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Required:

(a) The business needs to have a sense of its future cash inflows and outflows for the quarter 
and therefore requires the preparation of the following:


▪ A schedule of budgeted cash collections for trade receivables for each of the months 
January to March. 


▪ A schedule of expected cash disbursements for accounts payable for each of the months 
January to March. 


▪ A cash budget, with a total column, for the quarter ending March 31, 2023, showing the 
expected cash receipts and payments for each month and the ending cash balance for each 
of the three months, given that no financing activities took place.


(b) Another team member who is preparing the Budgeted Balance Sheet for the business for 
the same quarter ending March 31, 2023 and has asked you to furnish him with the figures 
for the expected trade receivables and payables to be included in the statement. Is that a 
reasonable request? If yes, what should these amounts be? 


(c) Upon receipt of the budget, the team manager, Damion Brownie, has now informed you 
that, in keeping with industry players, the management of Varsity Supplies & Things have 
indicated an industry requirement to maintain a minimum cash balance of $162,000 each 
month. He has also noted that management is very keen on keeping the gearing ratio of the 
business as low as possible and would therefore prefer to cushion any gaps internally using
equity financing.
Based on the budget prepared, will the business be achieving this desired target? Suggest 
three (3) internal strategies that may be employed by management to improve the 
organization’s monthly cash flow and militate against or reduce any possible shortfall 
reflected in the budget prepared. Each strategy must be fully explained.

(vii) Fixed operating expenses which accrue evenly throughout the year, are estimated to be
$2,088,000 per annum, which include depreciation on non-current assets of $504.000 per
annum and are expected to be settled monthly.
(viii) Other operating expenses which accrue evenly throughout the year are expected to be
$672.000 per annum and will be settled monthly.
S
Transcribed Image Text:(vii) Fixed operating expenses which accrue evenly throughout the year, are estimated to be $2,088,000 per annum, which include depreciation on non-current assets of $504.000 per annum and are expected to be settled monthly. (viii) Other operating expenses which accrue evenly throughout the year are expected to be $672.000 per annum and will be settled monthly. S
Varsity Supplies & Things is a family-owned store. The business is now approaching the end of
the year and is desirous of Identifying its expected cash inflows and outflows for the first quarter of
the new year. You are the management accountant of the entity and have been tasked to prepare
the cash budget for the business for the quarter ending March 31, 2023. The following data is
available:
(1)
(11)
(III)
(iv)
(v)
(vi)
Extracts from the sales and purchases budgets are as follows:
Month
Sales
On
2022 - 2023
November 2022
December 2022
January 2023
February 2023
March 2023
Cash
Sales
$142,100
$165,500
$171,475
$144,940
$236,720
Account
$480,000
$600,000
$650,000
$700,000
$800,000
Cash
Purchases
55% in the month of sale
35% in the first month following the sale
$25,800
$44,625
$30,400
$55,100
8% in the second month following the sale
The remaining 2% is expected to be uncollectible
Purchases
On
Account
$345,000
An analysis of the records shows that trade receivables (accounts receivable) are settled
according to the following credit pattern, in accordance with the credit terms 4/30, n90:
$380,000
$400,000
$480,000
$540,000
Accounts payable are settled as follows, in accordance with the credit terms 2/30, n60:
85% in the month in which the inventory is purchased
15% in the following month
The management of Varsity Supplies & Things has negotiated with a tenant to sublet office
space to her beginning February 1. The rental is expected to be $576,000 per annum. The
first month's rent along with one month's safety deposit is expected to be collected on
February 1. Thereafter, monthly rental income becomes due at the beginning of each
month.
Office Furniture & Fixtures, which is estimated to cost $350,000, will be purchased in
February. The manager has made arrangement with the suppliers to make a cash deposit of
40% upon signing of the agreement in February. The balance will be settled in five (5) equal
monthly instalments beginning March of 2023.
The management of Varsity Supplies & Things is in the process of upgrading its fleet of
motor vehicles. During February the business expects to sell an old delivery motor van that
cost $720,000 at a loss of $45,000 to an employee. Accumulated depreciation on this motor
van at that time is expected to be $375,000. The employee will be allowed to pay a deposit
equal to 50% of the selling price in February; the balance will be settled in two equal
amounts in March & April of 2023.
Transcribed Image Text:Varsity Supplies & Things is a family-owned store. The business is now approaching the end of the year and is desirous of Identifying its expected cash inflows and outflows for the first quarter of the new year. You are the management accountant of the entity and have been tasked to prepare the cash budget for the business for the quarter ending March 31, 2023. The following data is available: (1) (11) (III) (iv) (v) (vi) Extracts from the sales and purchases budgets are as follows: Month Sales On 2022 - 2023 November 2022 December 2022 January 2023 February 2023 March 2023 Cash Sales $142,100 $165,500 $171,475 $144,940 $236,720 Account $480,000 $600,000 $650,000 $700,000 $800,000 Cash Purchases 55% in the month of sale 35% in the first month following the sale $25,800 $44,625 $30,400 $55,100 8% in the second month following the sale The remaining 2% is expected to be uncollectible Purchases On Account $345,000 An analysis of the records shows that trade receivables (accounts receivable) are settled according to the following credit pattern, in accordance with the credit terms 4/30, n90: $380,000 $400,000 $480,000 $540,000 Accounts payable are settled as follows, in accordance with the credit terms 2/30, n60: 85% in the month in which the inventory is purchased 15% in the following month The management of Varsity Supplies & Things has negotiated with a tenant to sublet office space to her beginning February 1. The rental is expected to be $576,000 per annum. The first month's rent along with one month's safety deposit is expected to be collected on February 1. Thereafter, monthly rental income becomes due at the beginning of each month. Office Furniture & Fixtures, which is estimated to cost $350,000, will be purchased in February. The manager has made arrangement with the suppliers to make a cash deposit of 40% upon signing of the agreement in February. The balance will be settled in five (5) equal monthly instalments beginning March of 2023. The management of Varsity Supplies & Things is in the process of upgrading its fleet of motor vehicles. During February the business expects to sell an old delivery motor van that cost $720,000 at a loss of $45,000 to an employee. Accumulated depreciation on this motor van at that time is expected to be $375,000. The employee will be allowed to pay a deposit equal to 50% of the selling price in February; the balance will be settled in two equal amounts in March & April of 2023.
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