Syed Murad, who is interested in computers, has decided to set up a small business selling business computer software. He originally worked as Pegasus partner; the company produced the awarded winning software called Pegasus software. Syed worked for the company for over 20 years. He now wants to establish a company as the leading software provider in the South West. His plans are to discuss the business requirements with the customer and then present potential solutions to the problem. His vision is to deliver software solutions as either on-premises or cloud solutions. The software, which is mainly small business software, is bought in bulk from the manufacturer and then sold by means of advertisements in computer magazines. Syed has been requested by the his financial advisor to produce a forecasted set of financial statements. He has asked with your assistance to produce estimates for his new business for the next 6 months, as follows: He will commence trading with a capital investment in January of 2,500. At the beginning of January, he will purchase stock of software which will cost him 2,000. As he is not yet established in his business, he will have to pay for this straight away. He has estimated his sales to be: o January 1,000 February 1,600 March 1,800 o April 2,000 May 4,000 . o O O o June 2,400 . The reason for the high sales figure estimated for May is because Syed plans to have a stand at a major business 2 business exhibition. Most sales will be for cash, but he does expect a quarter of each month's sales will be made to computer shops on credit; he plans to allow customers one month's credit. His monthly software purchases will be at cost price, being 50% of his sales. Apart from the purchase of initial stock, all purchases will be made from suppliers who allow him one month's credit. He will spend 500 each month on advertising; this must be paid for straight away. The computer stand at the computer exhibition in May will cost 800 and must be paid for in April. . . Various sundry expenses, including postage and packaging are expected to cost 200 each for January, February & March, and 300 for April, May & June. As Syed plans initially to operate his business from his parents' house there will be no office rental costs. He will, however, need to buy office equipment in January at a cost of 1,000; this will be paid for straight away. Syed expects this equipment to last 5 years before it will be replaced. The depreciation rate on the equipment will be 20% per annum. For the first six months, Syed will take 200 per month as drawings; once the business has been established, he hopes he will be able to draw out more. His closing stock at the end of the 6 months will be 2,000 Required a) Prepare a forecasted cash budget for the period January to June (20 marks) b) Prepare a forecasted set of financial statements for the period January to June (20 marks) c) Explain the purpose of cash budget and explain the difference between a cash inflow and cash outflow (6 marks) d) Explain the following terms: O Drawings O Debtors o Cost of Goods Sold o Capital Employed