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

(i) She will put £150,000 into a bank account for 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 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. Customers will pay for the goods in the fourth month after purchase, i.e. £60,000 is received in May.

(v) She will make drawings of £1,200 per month.

(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.

(viii) 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.

(ix) She will introduce new capital of £82,500 on 1 April 20X1.

(x) Insurance covering the 12 months of 20X1 of £2,100 will be paid for by cheque on 30 June 20X1.

(xi) All receipts and payments will be by cheque.

(xii) Inventory on 30 June 20X1 will be £30,000.

(xiii) The net realisable value of the vehicles is £19,200, machinery £27,000 and premises £75,000.

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.