Mrs. Collins wants to start a clothing business. He plans to invest Gh₵ 30,000 of his savings into the new business. She thinks that some additional finance will be required in the short term and plans to approach his bank for this. Mrs. Collins asks for your assistance in producing a cash budget for his new business for the next six months (i.e., January – June, 2021). She provides the following information: The business, which is to be called ‘Pink Lady Clothing’ will commence in January 2021. Non-current assets costing Gh₵ 10,000 will be bought in early January. These will be paid for immediately and are expected to have a five-year life, at the end of which they will be worthless. An initial stock (inventory) of goods costing Gh₵ 6,000 will be bought and paid for at the beginning of January. Mrs. Collins is estimating that the goods she expects to sell in January will be replaced by purchases made in January, and so on. The following are monthly sales forecast: January February March April May June Gh₵ 3,000 Gh₵ 6,000 Gh₵ 6,000 Gh₵ 12,000 Gh₵ 12,000 Gh₵ 12,000 The goods she expects to sell in each month cost two-thirds of the selling price. E.g., the cost price of goods to be sold in January 2021 would be Gh₵2000. To encourage sales, she will allow two months’ credit to customers; however, only one month’s credit will be received from suppliers of goods. Operating expenses of the business, including rent of premises, but excluding depreciation of non-current assets, are estimated at Gh₵1,400 per month and will be paid for in the month in which they are incurred. Mrs. Collins intends to draw Gh₵1,000 each month in cash from the business. You are asked to prepare a cash budget for the first six months of the business and determine the net cashflow.
Mrs. Collins wants to start a clothing business. He plans to invest Gh₵ 30,000 of his savings into the new business. She thinks that some additional finance will be required in the short term and plans to approach his bank for this. Mrs. Collins asks for your assistance in producing a
The business, which is to be called ‘Pink Lady Clothing’ will commence in January 2021.
Non-current assets costing Gh₵ 10,000 will be bought in early January. These will be paid for immediately and are expected to have a five-year life, at the end of which they will be worthless.
An initial stock (inventory) of goods costing Gh₵ 6,000 will be bought and paid for at the beginning of January.
Mrs. Collins is estimating that the goods she expects to sell in January will be replaced by purchases made in January, and so on.
The following are monthly sales
January February March April May June
Gh₵ 3,000 Gh₵ 6,000 Gh₵ 6,000 Gh₵ 12,000 Gh₵ 12,000 Gh₵ 12,000
The goods she expects to sell in each month cost two-thirds of the selling price. E.g., the cost price of goods to be sold in January 2021 would be Gh₵2000.
To encourage sales, she will allow two months’ credit to customers; however, only one month’s credit will be received from suppliers of goods.
Operating expenses of the business, including rent of premises, but excluding depreciation of non-current assets, are estimated at Gh₵1,400 per month and will be paid for in the month in which they are incurred.
Mrs. Collins intends to draw Gh₵1,000 each month in cash from the business.
You are asked to prepare a cash budget for the first six months of the business and determine the net cashflow.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
