From the data given below, prepare a cash budget for each of the first three months of
Question:
From the data given below, prepare a cash budget for each of the first three months of 1995:
(a) Cash balance on 1 January 1995 is forecast to be £40,000.
(b) A new computer is to be installed in January 1995 at a cost of £100,000 and will be paid for on 1 March 1995.
(c) A sales commission of 2.5% on sales is to be paid within one month of the month of sale.
(d) Taxation of £180,000 is to be paid in February 1995.
(e) In January 1995 a dividend of £40,000 is to be paid to ordinary shareholders.
(f) £10,000 per month is payable under a leasing agreement.
(g) An issue of debentures is expected to be made during February 1995 which will result in £50,000 being received during that month.
(h) The period of credit allowed by suppliers averages two months.
Payment of overheads is delayed an average of one month.
Payment of research and development expenditure averages half a month.
(k) Delay in payment of wages averages a quarter of a month.
To encourage payment of invoices the company allows a cash discount of 5% if payment is made within one week and of 2.5% if payment is made within one month. It is estimated that 25% of the debtors of each month pay within one week and that a further 60% of debtors of each month pay within one month. The remaining debtors are expected to pay their invoices in full within two months.
All sales are invoiced on the last day of the month. A forecast of costs and revenues includes the following:
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