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: August 210 June July 175 £155 September October Sales (Unit) Unit price 195 £145 235 165 £170 £160 £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. The sales team earn commission of 4% of monthly sales revenue, and this is paid in the month following the sale. d) e) 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 g) 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. (b) Taking into account the planned purchase of equipment at the end of October, suggest how any resulting cash deficit/surplus could be financed/used.

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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How to do a cash budget?

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:
June
September
July
175
August
210
October
Sales (Unit)
Unit price
195
235
165
£145
£155
£170
£160
£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.
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.
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
f)
g)
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.
(b) Taking into account the planned purchase of equipment at the end of October,
suggest how any resulting cash deficit/surplus could be financed/used.

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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