You are provided with information relating to Magic Traders - NSC Accounting - Question 6 - 2018 - Paper 1

The main purpose of a Projected Income Statement is to estimate the expected net profit or loss by forecasting revenues and expenses for a future period, allowing the business to make informed financial decisions and strategic planning.

To complete the Debtors' Collection Schedule, we total the credit sales for March 2018, April 2018, and May 2018 to calculate the expected cash collections.

• March Sales: $252,000
• April Sales: $288,000 (30% received in May)
• May Sales: $180,000 (30% received in June)

Total cash collected in June from previous months:

• From March: $252,000
• From April: $288,000 imes 0.3 =$86,400
• From May: $180,000 imes 0.3 =$54,000

Total collections: $252,000 +$86,400 + $54,000 =$392,400.

To determine the amounts:

• Discount allowed for May 2018:

  Calculated from the May sales: $51,300 imes 0.05 =$2,565.

• Bad debts written off in June 2018:

  1% of March credit sales = $252,000 imes 0.01 =$2,520.

1. Cash sales for May 2018:

   Total sales = $300,000, with 40% as cash sales:

   Cash sales = $300,000 imes 0.4 =$120,000.

2. Payment to creditors in June 2018:

   Based on the given data, total payment = $300,000 imes 100/150 imes 80/100, leading to total payments of$160,000.

3. Salaries for May 2018:

   Total salaries = (2 imes $14,500) + (4 imes$26,100) = $133,400.

Tony is not concerned about the overspending in advertising because the positive effect of increased advertising is reflected in higher sales. For instance, advertising increased by $3,000 while sales grew by$96,000. This indicates a substantial return on investment.

One consequence of not paying creditors by the due date is that the business may lose credit facilities, which could hinder future operations as they may restrict supply or charge higher interest rates.

1. Gentex Cleaning Services generally provides reliable and high-quality cleaning services, enhancing the business's operational efficiency.
2. Their cost structure is reasonable compared to competitors while maintaining service quality, thus potentially leading to overall expenses reduction.