Jane Parker is going to set up a new business in Bruges on 1 January 20X1. She estimates that her first six months in business will be as follows:

(i) She will put €150,000 into the firm on 1 January 20X1.

(ii) On 1 January 20X1 she will buy machinery €30,000, motor vehicles €24,000 and premises €75,000, paying for them immediately.

(iii) All purchases will be effected on credit. She will buy €30,000 goods on 1 January and she will pay for these in February. Other purchases will be: rest of January €48,000; February, March, April, May and June €60,000 each month. Other than the €30,000 worth bought in January, all other purchases will be paid for two months after purchase.

(iv) Sales (all on credit) will be €60,000 for January and €75,000 for each month after that. Customers will pay for goods in the third month after purchase, i.e. €60,000 in April.

(v) Inventor y on 30 June 20X1 will be €30,000.

(vi) Wages and salaries will be €2,250 per month and will be paid on the last day of each month.

(vii) General expenses will be €750 per month, payable in the month following that in which they are incurred.

Rates will be paid as follows: for the three months to 31 March 20X1 by cheque on 28 February 20X1; for the 12 months ended 31 March 20X2 by cheque on 31 July 20X1. Rates are €4,800 per annum.

(viii) She will introduce new capital of €75,000 on 1 June 20X1. This will be paid into the business bank account immediately.

(ix) Insurance covering the 12 months of 20X1 of €26,400 will be paid for by cheque on 30 June 20X1.

(x) Local taxes will be paid as follows: for the three months to 31 March 20X1 by cheque on 28 February 20X2, delay due to an oversight by Parker; for the 12 months ended 31 March 20X2 by cheque on 31 July 20X1. Local taxes are €8,000 per annum.

(xi) She will make drawings of €1,500 per month by cheque.

(xii) All receipts and payments are by cheque.

(xiii) Depreciate motor vehicles by 20% per annum and machinery by 10% per annum, using the straight-line depreciation method.

(xiv) She has been informed by her bank manager that he is prepared to offer an overdraft facility of €30,000 for the first year.

Required: Cash flow accounting

(i) Draft a cash budget (includes bank) month by month for the period January to June, showing clearly the amount of bank balance or overdraft at the end of each month.

(ii) Draft an operating cash flow statement for the six-month period.

(iii) Assuming that Jane Parker sought your advice as to whether she should actually set up in business, state what further information you would require.