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 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 beginning cash balance on September 1 is $10,000.The ending cash balance on September 30 would be:

Question

Quizplus · Accepted Answer

1. Expected September sales = $150,000 x 1.25 = $187,500
2. Expected September purchases = $120,000
3. Collections from August sales in September = 70% x 150,000 = $105,000
4. Collections from September sales in September = 30% x 187,500 = $56,250
5. Payments for August purchases in September = 75% x 100,000 = $75,000
6. Payments for September purchases in September = 25% x 120,000 = $30,000
7. Total cash inflows in September = $105,000 + $56,250 = $161,250
8. Total cash outflows in September = $75,000 + $30,000 = $105,000
9. Net cash inflow in September = $161,250 - $105,000 = $56,250
10. Ending cash balance on September 30 = Beginning cash balance + Net cash inflow in September = $10,000 + $56,250 = $66,250.

Worton Distributing Expects Its September Sales to Be 25% Higher