Reference no: EM132814479

Question - Green Friends Ltd is a garden design and landscaping business that started operations on 1 September 2020. The following information has been provided by the firm.

In September, cash sales were $15,000 and credit sales $35,000. Total expected sales in the following three months are: $70,000 in October; $78,000 in November; and $82,000 in December. The company expects 30% of the sales of each month to be cash sales and the remainder credit sales. Credit sales are expected to be collected 50% in the month of the sale, 30% in the next month, and 20% in the following month.

All purchases of inventory are on credit. Purchases of inventory in September were $40,000. The company estimates purchases in the following three months to be: $32,000 in October, $38,000 in November and $42,000 in December. Purchases are paid 50% in the month of purchase, and 50% in the following month.

Wages expense is estimated to be $18,000 in October, $20,000 in November and $22,000 in December, paid in cash.

Other operating expenses are budgeted to be $24,000 in October, $25,000 in November and $28,000 in December, paid in cash.

Depreciation expenses of $900 per month are expected.

The cost of sales is estimated as 40% of sales revenue each month.

On 1 September, equipment costing $12,000 was purchased. The equipment will be paid for in two equal instalments in October and November.

Estimated cash received to be from the sale of a block of land in November is $56,000 (book value)

The cash balance at 1st October 2020 was $3,500

Required -

1. Create a Budgeted Income Statement for the period October - December 2020.

2. Create a schedule of estimated receipts from debtors (accounts receivable) for the months of October, November and December 2020.

3. Prepare a cash budget for October, November and December 2020.