Question

Walter Enterprises expects its September sales to be 30% higher than its August sales of $235,000. Purchases were $185,000 in August and are expected to be $205,000 in September. All sales are on credit and are collected as follows: 40% in the month of the sale and 60% in the following month. Merchandise purchases are paid as follows: 30% in the month of purchase and 70% in the following month. The beginning cash balance on September 1 is $8,600. The ending cash balance on September 30 would be:

Answer 1

Answer:

• $80,800

Explanation:

Raw data (in $):

                                August        September        

                                     

Sale                            235,000      1.3 × 235,000 = 305,500

• Cash collected   40%                    60% of 235,000

                                                                40% of 305,500

Purchase                    185,000           205,000

• Cash paid           30%                    70% of 185,000

                                                               30% of 205,000

Beginning cash balance on September 1: $8,600

Calculations:

The change of the cash balance on September will be the cash collected during the month less the cash paid during the month:

• Cash collected:     60% × $235,000 = $141,000

                                       40% × $305,000 = $122,200

• Cash paid:            70% × $185,000 = $129,500

                                      30% × $205,000 = $61,500

Ending cash balance of September 30:

• Beginning cash balance + cash collected - cahs paid

• $8,600 + $141,000 + $122,200 - $129,500 - $61,500 = $80,800