Worton Distributing expects its September sales to be 25% higher than its August sales of $150,000. Purchases were $100,000 in August and are expected to be $120,000 in September. All sales are on credit and are expected to be collected as follows: 30% in the month of the sale and 70% in the following month. Purchases are paid 25% in the month of purchase and 75% in the following month. The cash balance on September 1 is $10,000. The ending cash balance on September 30 is estimated to be:
What will be an ideal response?
$66,250
1. Beginning-of-month cash balance (given) = $10,000
2. Cash receipts in September from credit sales made in August ($150,000 × 0.70) = $105,000
3. Cash receipts in September from credit sales made in September ([$150,000 × 1.25] × 0.30) = $56,250
4. Cash disbursements in September from purchases made in August ($100,000 × 0.75) = $75,000
5. Cash disbursements in September from purchases made in September ($120,000 × 0.25) = $30,000
6. Ending cash balance = Beginning cash balance + Cash receipts from credit sales made in August + Cash receipts from credit sales made in September ? Cash disbursements from purchases made in August ? Cash disbursements for purchases made in September = $10,000 + $105,000 + $56,250 ? $75,000 ? $30,000 = $66,250
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