Oneida company_cash budget | Accounting homework help


MERCHANDISING: Preparation of cash budgets (for three periods)

During the last week of August, Oneida Company’s owner approaches the bank for an $100,000 loan to be made on September 2 and repaid on November 30 with annual interest of 12%, for an interest cost of $3,000. The owner plans to increase the store’s inventory by $80,000 during September and needs the loan to pay for inventory acquisitions. The bank’s loan officer needs more information about Oneida’s ability to repay the loan and asks the owner to forecast the store’s November 30 cash position.

On September 1, Oneida is expected to have a $5,000 cash balance, $148,000 of accounts receivable, and $125,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow.


BUDGETED FIGURES*                                                SEPTEMBER                     OCTOBER                    NOVEMBER

Sales ……………………………………….                               $250,000                       $375,000                    $400,000

Merchandise purchases…………..                                 240,000                         225,000                       200,000

Cash Disbursements

Payroll……………………………………..                                  20,000                            22,000                         24,000

Rent…………………………………………                                  10,000                            10,000                         10,000

Other cash expenses………………..                                  35,000                            30,000                         20,000

Repayment of bank loan …………                                                                                                               100,000

Interest on the bank loan…………                                                                                                                   3,000


*Operations began in August; August sales were $215,000 and purchases were $125,000.


The budgeted September merchandise purchases include the inventory increase. All sales are on account. The company predicts that 25% of credit sales is collected in the month of the sale, 45% in the month following the sale, 20% in the second month, 9% in the third, and the remainder is uncollectible.

Applying these percents to the August credit sales, for example, shows that $96,750 of the $215,000 will be collected in September, $43,000 in October, and $19,350 in November. All merchandise is purchased on credit; 80% of the balance is paid in the month following a purchase, and the remaining 20% is paid in the second month. For example, of the $125,000 August purchases, $100,000 will be paid in September and $25,000 in October.



Prepare a cash budget for September, October, and November for Oneida Company. Show supporting calculations as needed.





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