Ned's Co. has an average collection period of 45 days and an operating cycle of 130 days. It has a policy of keeping at least $10 on hand as a minimum cash balance, and has a beginning cash
Balance for the ﬁrst quarter of $20. Beginning receivables for the quarter amount to $35. Sales for
The ﬁrst and second quarters are expected to be $110 and $125, respectively, while purchases
Amount to 80% of the next quarter's forecast sales. The accounts payable period is 90 days.
What are cash disbursements for the ﬁrst quarter?

Question

Quizplus · Accepted Answer

Cash disbursements for the first quarter include purchases based on 80% of the second quarter's sales forecast ($125 * 0.8 = $100). Since the accounts payable period is 90 days, the company will pay for the purchases made in the previous quarter, which is 80% of the first quarter's sales forecast ($110 * 0.8 = $88). Therefore, the cash disbursements for the first quarter are $88.

Ned's Co Has an Average Collection Period of 45 Days and and an Operating