A company is preparing its cash budget for the coming month. All sales are on account. Given the following: Beginning Balances Budget AmountsCash $ 98,000 Accounts Receivable 188,000 Sales $ 840,000Cash disbursements 860,000Depreciation 29,000Ending accounts receivable balance 218,000What is the expected cash balance of the company at the end of the coming month? (CIA adapted)Multiple Choice$54,000$48,000$84,000$18,000
Question
A company is preparing its cash budget for the coming month. All sales are on account. Given the following: Beginning Balances Budget AmountsCash 840,000Cash disbursements 860,000Depreciation 29,000Ending accounts receivable balance 218,000What is the expected cash balance of the company at the end of the coming month? (CIA adapted)Multiple Choice48,00018,000
Solution
To calculate the expected cash balance at the end of the month, we need to follow these steps:
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Calculate the cash collections from customers. We know that all sales are on account, so we need to figure out how much of the accounts receivable will be collected. We can do this by adding the beginning accounts receivable to the sales for the month, and then subtracting the ending accounts receivable balance. This gives us:
Cash collections = (Beginning Accounts Receivable + Sales) - Ending Accounts Receivable Cash collections = (840,000) - 810,000
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Next, we need to calculate the total cash available. This is the sum of the beginning cash balance and the cash collections from customers:
Total Cash Available = Beginning Cash + Cash Collections Total Cash Available = 810,000 = $908,000
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Finally, we subtract the cash disbursements from the total cash available to find the expected cash balance at the end of the month:
Expected Cash Balance = Total Cash Available - Cash Disbursements Expected Cash Balance = 860,000 = $48,000
So, the expected cash balance at the end of the month is 48,000.
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