David Llewelyn has been advised by his bank manager that he ought to provide a forecast of his cash position
David Llewelyn has been advised by his bank manager that he ought to provide a forecast of his cash position at the end of each month. This is to ensure that his cash inputs will be sufficient to allow a bank loan to be repaid when due and to check that his outgoings are properly controlled. It is estimated that at 30 June 2017 his current account will be £5,000 in credit, whereas the amount owing in respect of the bank loan taken out on 1 July 2012 will be £15,000. Monthly deductions from the current account balance amount to £242 including interest charges on account of this loan. In addition to these outgoings, David has to allow for the following:
(i) The payment of wages of £2,000 per month.
(ii) Personal drawings of £500 per month.
(iii) On average David earns a margin of 15% (of sales) and expects to sell inventory purchased in the previous month. Of the sales in any one month, 20% are paid for within that month, 70% the following month and the remainder two months after sale. Other receipts from debtors are expected to be £40,000 in July 2017, £32,000 in August 2017 and £4,000 in September 2017.
(iv) Purchases of supplies will amount to £38,250 per month from July 2017 payable one month in arrears. In addition, purchases of £7,500 to increase inventory will be delivered in September 2017 and must be paid for in October 2017. Creditors of £34,000 for purchases made in June 2017 are to be paid in July 2017.
(v) Monthly payments to the Revenue and Customs for the taxation of his employees’ earnings will amount to £500 per month.
(vi) Rent which has to be paid quarterly in advance amounts to £5,000 per annum. These payments commenced in January 2017.
(vii) Business rates are to be paid in two instalments as due in October 2017 and in March 2018. This estimated expenditure will amount to £4,500 per annum.
(viii) Payment of Value Added Tax to H.M. Revenue and Customs of £5,000 in July 2017 and every third month thereafter (but see also (ix)).
(ix) David intends to purchase a van for £8,150 in August 2017. He will then be entitled to deduct £1,050 from the VAT payment due to H.M. Revenue and Customs in October 2017.
A forecast cash flow statement in columnar form showing the estimated current account balance at the close of each of the four months ending 31 October 2017.
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