NSC Accounting Analysis of cash budget: 6.1 Explain why:

6.1.1 Deprecia

Question

6.1 Explain why:

6.1.1 Depreciation and bad debts will not appear in a Cash Budget.

6.1.2 A cash budget is different from a Projected Income Statement.

6.2 KWT DISTRIBUTORS LTD

You are provided with information for the budget period November and December 2017.

REQUIRED:

6.2.1 Complete the Debtors Collection Schedule.

6.2.2 Calculate the missing amounts denoted by (i) to (v) on the Cash Budget.

6.2.3 Comment on the internal controls regarding the collection from debtors and the payment to creditors. Provide TWO points.

INFORMATION:

A. Cash sales amount to 40% of total sales.
Goods are marked-up by 25% on cost.

B. Debtors are granted credit terms of 30 days. The actual collection trend revealed that:

50% of debtors pay in the month of sale to receive 5% discount.
30% are received in the month following the month of sales;
18% is collected in the second month after the sale;
2% of debtors is written off thereafter.

C. Stock is replaced in the month sold (a base stock is maintained).

D. Rent income will increase by 8% in December 2017.

E. 80% of stock is bought on credit. Creditors are paid in full in the month following the month of purchase.

F. Salaries and wages are expected to remain the same for the budget period.
Staff members on leave in December will receive their pay, totaling R36 600, during November.

G. A loan will be received from a director, Thabo, on 1 November 2017 at 13% p.a. interest. Interest is not capitalised. A fixed monthly instalment and interest will be paid at the end of each month.

H. The company will pay interim dividends during December.

I. Incomplete Debtors Collection Schedule:

MONTH      CREDIT SALES              NOVEMBER        DECEMBER
SEPTEMBER            180 000          ?
OCTOBER               186 000          55 800
NOVEMBER             ?                       92 825
DECEMBER            210 000          ?
TOTAL

J. Information from the Projected Income Statement:

NOVEMBER 2017

SALES                           325 200
COST OF SALES            260 000
COMMISSION INCOME  24 800
DEPRECIATION           12 600
INTEREST EXPENSE      1 625

K. Incomplete Cash Budget for 2017:

RECEIPTS
NOVEMBER                     DECEMBER
CASH SALES                  130 000                 ?
CASH FROM DEBTORS    24 800                     26 000
COMMISSION INCOME   ?                                   (ii)              19 710
LOAN FROM DIRECTOR THABO        150 000            ?
TOTAL RECEIPTS

PAYMENTS
CASH PURCHASES OF STOCK      52 000                56 000
PAYMENTS TO CREDITORS                  ?
DIRECTORS FEES                             ?
SALARIES AND WAGES                    ?
LOAN INSTALMENT (including interest)   ?
SUNDRY EXPENSES                      15 875
TOTAL PAYMENTS

6.1 Explain why: 6.1.1 Depreciation and bad debts will not appear in a Cash Budget - NSC Accounting - Question 6 - 2017 - Paper 1

Worked Solution & Example Answer:6.1 Explain why: 6.1.1 Depreciation and bad debts will not appear in a Cash Budget - NSC Accounting - Question 6 - 2017 - Paper 1

6.1.1 Depreciation and bad debts will not appear in a Cash Budget.

6.1.2 A cash budget is different from a Projected Income Statement.

6.2.1 Complete the Debtors Collection Schedule.

(i) Cash sales for December:

(ii) Rent income amount for November:

(iii) Payments to creditors for November:

(iv) Salaries and wages for November:

(v) Loan instalment (including interest) for December:

6.2.3 Comment on the internal controls regarding the collection from debtors and the payment to creditors.

Join the NSC students using SimpleStudy...