Problem 9-53 Cash Budgeting

Jordana Krull owns The Eatery in Miami, Florida. The Eatery is an affordable restaurant located near
tourist attractions. Jordana accepts cash and checks. Checks are deposited immediately . The bank
charges $0.50 per check; the amount per check averages $65. Bad checks that Jordana collect make up
2% of check revenue.

During a typical month, The Eatery has sales of $75,000. About 75% are cash sales. Estimated sales for
the next three months are as follows:

July $60,000

August 75,000

September 80,000

Jordana thinks that it may be time to refuse to accept checks and to start accepting credit cards. She is
negotiating with a credit card processing service that will allow her to accept all major credit cards. She
would start the new policy on July 1. Jordana estimates that with the drop in sales from the no-checks
policy and the increase in sales from the acceptance of credit cards, the net increase in sales will be 20%.
The credit card processing service will charge no setup fee, however the following fees and conditions
apply:

- Monthly gateway and statement fee totalling $19, paid on the first day of the month.
- Discount fee of 2% of the total sale. This is not paid separately instead, the amount that Jordana
receives from each credit sale is reduced by 2%. For example, on a credit card sale of $150, the
processing company would take $3 and remit a net amount of $147 to Jordana’s account.
- Transaction fee of $0.25 per transaction paid at the time of transaction.
- There will be a two-de;ay between the date of the transaction and the date on which net
amount will be deposited into Jodana’s account. On average, 94% of a month’s netmcredit card
sales will be deposited into her account that month. The remaining 6% will be deposited the
next month.
- If Jordana adds credit cards, she believes that cash sales will average just 5% of total sales, and
the average credit card transaction will be $50.

Required

1. Prepare a schedule of cash receipt for August and September under the current policy accepting
checks

2. Assuming that Jordana decided to accept credit cards,

a. Calculate revised total sales, cash sales, and credit card slaes by month for August and
September
b. Calculate the total estimated credit card transaction for August and September
 3. Prepare a schedule cash receipts for August and September that incorporates the changes in
Policy.

      August   September
Estimated sales   75,000   80,000  
Cash sales (75%)   56,250   60,000  
Checks revenue (25%) 18,750   20,000  
             
Total of checks received (in
pieces)
[ Total checks sales / average
amount per checks - $65 ] 288   308  

             
Bank charges [ $0.50
per checks ]   144   154  
Bad checks [ 2% of
checks revenue ]   375   400  
             
Actual checks revenue
[Checks revenue - [Bank
charges+Bad checks] ] 18,231   19,446  
             
Total revenue received

[Cash sales + Actual checks

revenue] 74,481   79,446