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A company has a current cash balance of $7000, trade receivables of $15,000 and trade payables of $40,000. The company sell goods costing $50,000 for $70,000 next month. One half of all sales are collected in the month of sale and the remainder in the following month. All purchases are made on credit and paid during the following month. Inventory levels remain constant during the month. General cash expenses will be $60,000 during the month.
What is the Cash balance at the end of the month?
Can I pls know the answer for this question. I’m confused with the answer provided in the revision kit.
Next month they will receive the $15,000 owing plus 50% of the $70,000 sales next month.
So total receipts will be $50,000.None of next months purchases will be paid for next month and so the only cash payment will be the $40,000 that was owing, plus the $60,000 general expenses.
So total payments will be $100,000.Therefore the cash balance at the end of next month will be 7,000 + 50,000 – 100,000 = -43,000 (i.e. $43,000 overdrawn).
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