Photo AI
Joan Smith had the following assets, liabilities and capital on the 01/06/2022: Assets € Fixed Assets 280,000 Stock 40,000 Cash 38,000 Debtors 92,800 Total Assets 450,800 Liabilities € Creditors 70,800 Capital 380,000 Total Liabilities 450,800 The expected sales and purchases for the next 5 months are as follows: June July Aug Sept Oct Total Sales €68,000 €65,000 €88,000 €85,000 €83,000 €389,000 Purchases €34,000 €46,000 €52,000 €44,000 €51,200 €227,200 - All sales are on credit and are paid for one month after sale - Leaving Cert Accounting - Question 9 - 2022
Question 9
Joan Smith had the following assets, liabilities and capital on the 01/06/2022: Assets € Fixed Assets 280,000 Stock 40,000 Cash 38,000 Debtors 92,800 Total Asset... show full transcript
Worked Solution & Example Answer:Joan Smith had the following assets, liabilities and capital on the 01/06/2022: Assets € Fixed Assets 280,000 Stock 40,000 Cash 38,000 Debtors 92,800 Total Assets 450,800 Liabilities € Creditors 70,800 Capital 380,000 Total Liabilities 450,800 The expected sales and purchases for the next 5 months are as follows: June July Aug Sept Oct Total Sales €68,000 €65,000 €88,000 €85,000 €83,000 €389,000 Purchases €34,000 €46,000 €52,000 €44,000 €51,200 €227,200 - All sales are on credit and are paid for one month after sale - Leaving Cert Accounting - Question 9 - 2022
Step 1
Prepare a cash budget showing Joan Smith’s expected monthly receipts and payments for the five months June to October 2022 and also the total column for the period.
Answer
To prepare the cash budget, we need to calculate the expected receipts and payments for each month.
Monthly Receipts
-
Debtors Collection:
- June: €92,800
- July: €68,000
- August: €65,000
- September: €88,000
- October: €85,000
Total Receipts: €398,800
Monthly Payments
- Purchases and Other Payments:
- Purchases:
- June: €34,000
- July: €46,000
- August: €52,000
- September: €44,000
- October: €51,200
- Wages: €18,000 each month = €90,000 over 5 months
- Rent: €5,000 each month = €25,000 over 5 months
- Equipment (July): €8,000
- Total Payments: €365,800
- Purchases:
Cash Budget Summary
| Month | Receipts | Payments | Net Cash Flow |
|---|---|---|---|
| June | €92,800 | €99,800 | €(7,000) |
| July | €65,000 | €76,000 | €(11,000) |
| August | €88,000 | €56,000 | €32,000 |
| September | €85,000 | €44,000 | €41,000 |
| October | €83,000 | €51,200 | €31,800 |
| Total | €413,800 | €365,800 | €48,000 |
- The closing cash position at the end of October will be calculated based on the net cash flow.
Step 2
Prepare a budgeted balance sheet as at 31/10/2022.
Answer
Balance Sheet as at 31/10/2022
Fixed Assets
- Fixed Assets: €280,000
- Equipment: €8,000
Total Fixed Assets: €288,000
Current Assets
- Stock (31/10/2022): €38,200
- Debtors (estimated): €83,000
- Cash (estimated after transactions): €67,000
Total Current Assets: €188,200
Current Liabilities
- Creditors: €51,200
Working Capital: €137,000
Net Current Assets: €425,000
Financed By
- Capital (01/06/2022): €380,000
- Net Profit: €45,000
Capital Employed 31/10/2022: €425,000
Step 3
Outline two benefits for Smith in preparing a cash budget.
Answer
-
Surplus/Deficit Tracking: Preparing a cash budget helps Joan track the surplus or deficit at the end of each month. This insight allows her to manage her finances better and plan for any potential shortages.
-
Informed Decision-Making: A cash budget can provide crucial information that helps Joan decide how to invest any surplus funds or whether she needs to take measures to address an overdraft situation.