Bluebird Ltd Has Provided the Estimates Below for the July-September

question 75

Essay

Bluebird Ltd has provided the estimates below for the July-September quarter in 2014.
$$\begin{array} { l r r r } & \text { July } & \text { August } & \text { September } \\& \$ & \$ & \$ \\\text { Sales } & 13,000 & 14,000 & 15,000 \\\text { Purchases } & 9,400 & 8,000 & 10,000 \\\text { Operating expenses } & 3,600 & 6,400 & 5,000\end{array}$$
You are also given the following additional information:
• 35% of sales are cash sales,the remaining 65% credit sales are collected as follows:
o 30% in the month of sale
o 40% in the month after sale
o 28% 2 months after sale
o 2% lost in bad debts
• Sales in the months of May and June were $11,000 and $10,000 respectively.
• Operating expenses include depreciation each month of $900.All expenses and purchases are paid for in the same month they are incurred.
• The firm expects to sell some old machinery for $7,000 in August.New machinery worth $9,500 will be purchased in September.
• The cash balance on 1st July 2014 is $5,700.
REQUIRED:
a)Prepare a schedule of receipts from accounts receivable showing the collections in the three months July to September.
b)Prepare a cash budget for Bluebird Ltd for the three months July to September.

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Definitions:

Expected Gain

The predicted benefit or profit derived from an investment or decision, based on probability calculations.

Pooling Risks

The practice of spreading financial risk among a large number of contributors to reduce the risk to individuals.

Insurance Company

A financial institution that offers policies to individuals or entities, offering protection from financial losses in exchange for premiums.

Car Theft

The act of unlawfully taking another's car with the intent to permanently or temporarily deprive the owner of it.