Reference no: EM132618886

RQ District Council open up a district shop to boost the economy of council, they decide to employee you in the shop as a shop accountant. One of the first jobs that have been assigned to you as a new employee is to prepar a cash budget for the period from 1st June 2015 to 30thSeptember, 2015.

(i) The cash balance as at 1st June 2015 is Tshs. 1,420,000.

(ii) 90% of all sales are credit sales; 80% of the credit sales are collected in the following month, 15% and 4% of the credit sales are collected 60 days and 90 days after sale respectively; 1% of the credit sales becomes bad debts and is never collected.

(iii) Purchases during the month equal 60% of the following month's estimated sales. Payment for purchases is made in the month following purchase.

(iv) The firm anticipates a delivery of new equipment in September 2015 Tshs. 1,000,000 will be paid upon delivery.

(v) A quarterly tax payment of Tshs. 500,000 is anticipated in September and December 2015.

(vi) Rent is Tshs. 100,000 per month. Other cash expenses average 3% of the current month's sales.

(vii) Depreciation expense averages Tshs. 150,000 monthly.

(viii) Labour costs paid monthly average 10% of the following month's sales.

(ix) The Board of Directors desires to maintain the firm's current dividend policy. A dividend payment of Tshs. 3,000,000 is scheduled for October 2015.

(x) The company experienced sales of Tshs. 3,000,000 in March 2015 and sales of Tshs. 2,000,000 during each of the next two months of 2015.

(xi) The projected sales schedule for the seven months of 2015 are given below:

Sales projections for June - December 2015

June Tshs.3,000,000

July Tshs.5,000,000

August Tshs.5,000,000

September Tshs. 6,000,000

October Tshs. 3,000,000

November Tshs. 2,000,000

December Tshs. 2,000,000

Required:

Problem 1: Use the above data to draw cash budget