19. The directors of Nelson Plc are considering investment in new equipment at the end of October. The equipment would cost £100,000 and the finance director has asked you to forecast how much cash the company will have available at the end of October to at least partly finance the investment. You have been provided with the following information: a) The sales forecast for the period from June to October: Sales (Unit) Unit price June 195 £145 July 175 £155 August 210 £170 September 235 £160 October 165 £185 b) 35% of customers pay in the month of sale, the rest pay in the following month. Purchases are 65% of the sales revenue of the corresponding month. Half of the c) purchases are paid for immediately and half are paid for in the following month. d) Wages of £9,500 are paid monthly. e) The sales team earn commission of 4% of monthly sales revenue, and this is paid in the month following the sale. 1) Charges for light and heat are £850 per month and are paid every 2 months starting from June. 9) In July the company will dispose of some old machinery which has a net book value of £8,000. The machinery will be sold for £7,000 and the buyer will be given 1 month's credit. h) At the end of July, Nelson plc has a bank balance of £64,000. Required (a) Prepare a cash budget for each month from August to October.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Cash budget problem, in columnar form, with following information, example for format also attached (show workings)

19. The directors of Nelson Plc are considering investment in new equipment at the end
of October. The equipment would cost £100,000 and the finance director has asked you
to forecast how much cash the company will have available at the end of October to at
least partly finance the investment.
You have been provided with the following information:
a)
The sales forecast for the period from June to October:
July
October
Sales (Unit)
Unit price
June
195
£145
August
210
September
235
£160
175
165
£155
£170
£185
b)
c)
35% of customers pay in the month of sale, the rest pay in the following month.
Purchases are 65% of the sales revenue of the corresponding month. Half of the
purchases are paid for immediately and half are paid for in the following month.
Wages of £9,500 are paid monthly.
d)
e)
The sales team earn commission of 4% of monthly sales revenue, and this is paid
in the month following the sale.
f)
Charges for light and heat are £850 per month and are paid every 2 months
starting from June.
In July the company will dispose of some old machinery which has a net book
value of £8,000. The machinery will be sold for £7,000 and the buyer will be given
1 month's credit.
h)
g)
At the end of July, Nelson plc has a bank balance of £64,000.
Required
(a) Prepare a cash budget for each month from August to October.

We have:
Receipts
Jan-20
Feb-20
Mar-20
Opening Balance
46,000
50,462
51,552
From customers
42,200
42,480
48,000
Total cash available
88,200
92,942
99,552
Payments
Purchases
23,888
29,250
24,700
Wages
8,500
8,500
8,500
Commission 3%
1,350
1,140
1,476
Light and heat
Advertising cost
Total Payments
1,500
1,500
2,500
2,500
2,500
37,738
41,390
38,676
Surplus/(Deficit)
50,462
51,552
60,876
Workings
Nov-19
Dec-19
Jan-20
Feb-20
Mar-20
Sales (Units)
210
250
190
240
220
Unit price
175
180
200
205
210
Total Sales
36,750
45,000
38,000
49,200
46,200
Cash collected from sales
Cash 40%
14,700
18,000
15,200
19,680
18,480
Credit 60% 1 month
22,050
27,000
22,800
29,520
Total money collected from sales
40,050
42,200
42,480
48,000
Purchases 65% of sales from
previous month (36750 x 0.65)
23,888
29,250
24,700
31,980
Payment for purchases
Cash 0%
Credit 100% 1 month
23,888
29,250
24,700
Total money paid for purchases
23,888
29,250
24,700
Commission charge 3% of Sales
1,350
1,140
1,476
1,386
Curmmnission payments
1,350
1,140
1,476

Definition Definition Estimate of an organization's cash flow for a future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future.

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