NSC Accounting Creditors’ payment schedule (creditors’ budget): 6.1 Explain why:
6.1.1 Depreciat

Question

6.1 Explain why:
6.1.1 Depreciation and bad debts will not appear in a Cash Budget.

Any valid explanation:
- Depreciation is a non-cash expense, meaning it does not involve any actual cash outflow.
- Bad debts are amounts deemed uncollectible and are also not actual cash transactions.

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

Any valid explanation:
- A cash budget focuses solely on cash inflows and outflows, aiding in cash management.
- In contrast, the Projected Income Statement includes both cash and non-cash items, emphasizing profit and loss over the budget period.

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.
(12)
6.2.2 Calculate the missing amounts denoted by (i) to (v) on the Cash Budget.
(20)
6.2.3 Comment on the internal controls regarding the collection from debtors and the payment to creditors. Provide TWO points.
(4)

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 purchases.

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. All interest and repayment 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    ?                       92 225            ?         
           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      ?                             ? 
           Commission income     24 800                26 000
           Rent 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           ?                             ? 
           Interest on loan                   ?                             ? 
           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

Explain why: Depreciation and bad debts will not appear in a Cash Budget.

Explain why: A cash budget is different from a Projected Income Statement.

Complete the Debtors Collection Schedule.

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

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

Join the NSC students using SimpleStudy...