ACCA FM · Guided practice (Show me how)
Chapter 6: Management of working capital (4) – Cash
A six-month cash budget and an overdraft ceiling
You are presented with the following forecast cash flow data for your organisation for the period November 20X1 to June 20X2. It has been extracted from functional forecasts that have already been prepared.
| $ | Nov X1 | Dec X1 | Jan X2 | Feb X2 | Mar X2 | Apr X2 | May X2 | Jun X2 |
|---|---|---|---|---|---|---|---|---|
| Sales | 80,000 | 100,000 | 110,000 | 130,000 | 140,000 | 150,000 | 160,000 | 180,000 |
| Purchases | 40,000 | 60,000 | 80,000 | 90,000 | 110,000 | 130,000 | 140,000 | 150,000 |
| Wages | 10,000 | 12,000 | 16,000 | 20,000 | 24,000 | 28,000 | 32,000 | 36,000 |
| Overheads | 10,000 | 10,000 | 15,000 | 15,000 | 15,000 | 20,000 | 20,000 | 20,000 |
| Dividends | 20,000 | 40,000 | ||||||
| Capital expenditure | 30,000 | 40,000 |
You are also told the following. (a) Sales are 40% cash, 60% credit. Credit sales are paid two months after the month of sale. (b) Purchases are paid the month following purchase. (c) 75% of wages are paid in the current month and 25% the following month. (d) Overheads are paid the month after they are incurred. (e) Dividends are paid three months after they are declared. (f) Capital expenditure is paid two months after it is incurred. (g) The opening cash balance is $15,000.
The managing director has arranged a bank overdraft with a ceiling of $50,000. Prepare a cash flow forecast for the six months January to June 20X2, and comment on it.
March receipts
Calculate the organisation's credit customer receipts and total cash receipts for March 20X2.
March payments
Calculate the organisation's wages paid and total cash payments for March 20X2.
Balances and the overdraft ceiling
Prepare the organisation's cash balances for January to June 20X2 and identify the first month in which its overdraft ceiling is exceeded.
Opening this exercise…