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QUESTION 31(a)(ii)
Hi,
In the calculation of the overdraft expected at the end of January 20X7, why did the answer not include the increase of Inventory of $52 250, January 20X7 credit sales of $350 000 and the January 2017 credit purchases of $250 000?
But they calculated the whole workings for those?
The overdraft at the end of January is calculated using the cash received in January and the cash paid in January.
There is no cash received from sales in January until February and March and so they are not relevant.
There is no cash paid for January’s purchases in January. They are not paid until February.They (and the inventory) are not relevant for part (ii) of the question because you are preparing a cash budget! The only reason the examiner has shown them in the workings is that they are needed for part (iii) but there is no need to show the workings until part (iii).
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