When building a cash budget, the following items are budgeted for the first quarter:
|
|
Jan |
Feb |
Mar |
|
Sales |
10,000 |
12,000 |
15,000 |
|
Purchases |
6,000 |
8,000 |
10,000 |
|
Wages |
1,500 |
1,500 |
1,500 |
|
Other expenses |
2,000 |
2,000 |
2,000 |
20% of all sales are cash sales. The remaining sales are on credit and customers have 30 days to pay.
All purchases are made on credit and paid after 2 months.
Wages are paid in the month they are incurred.
Other Expenses include depreciation at £1,000 per month.
What is the expected net cashflow in March?
A. £1,500
B. £6,500
C. £4,100
D. £3,100
In March, the company will have cash sales of £3,000 and income from February Credit Sales of £9,600 (80% of the £12,000 sales in February). A total income of £12,600.
It will pay the £6,000 purchases made in January. It will also have wages of £1,500 and other expenses of £1,000. The depreciation is not cash. Total payments £2,500.
So the net cashflow is £9,600 – £2,500 = £4,100.