FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question
You are presented with the following information extracted from your organisation’s financial statements for the year ended 31 December 2019.
- Sales on 31 December 2019 were K110 million. For the year 2020, sales are expected to grow at 8% per month for the year.
- 90% of the sales made are on account; the remainder on cash.
- Credit customers pay as follows:
- 85% in the month following the sale;
- 10% two months after the sale month.
- Irrecoverable debts are expected at the historical norm of 5% of credit sales.
- Inventory levels are maintained at 20% of the following month’s sales.
- Accounts payables are at settled at 30 days after purchase.
QUESTION
- Prepare a
cash flow forecast for the three-month period from January to March 2020.
2. Calculate the following for each month of the forecast period:
-
- Inventory days
Accounts receivable days- Accounts receivable days
- Cash conversion cycle
Briefly explain the implication of your assessment in (2) above on the continued management of the
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