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Dear Sirs,
I am having some trouble wrapping my head around this question, could you please enlighten me? Maybe even with T-accounts? Thank you in advance!
A trainee management accountant has prepared part of an entity’s budget for the next 6 months
Balances at 31 March (actual) Balances at 30 September (budgeted)
$000 $000
Raw Materials Trade Payables 58 47
Closing Inventory of Raw.M. 39 51The budget for the cost of Raw Materials purchased in the 6 month period to 30 September is $372,000.
Calculate the cash required to pay the R.M. trade payables for the period ended 30 September.
Give your answer to the nearest $000: (apparently the answer is 395)Hi,
It’s a tricky one and a bit difficult to put into words as can’t really draw T-accounts on here. However………….
We firstly put in an opening payable of 58 (credit side) and closing payable of 47 (credit side). We can then put in a credit for the cost of raw materials bought of 372, as these will have been bought on credit. Finally we need to put in a further credit for the increase in the RM balance, which has increased by 12. If you put them all in it should balance off with a debit balance of 395.
Or……..
47 + 372 + 12 – 47 = 395
Haven’t seen any questions previously like that so would be interest to see where you’ve got it from as I doubt it would be seen in the real exam.
Thanks
Thank you for getting back to me. So obviously the beginning balance is 372 (a credit in liability), then since payables increased by 11 (another credit balance in the liability), so far the amount needed to satisfy that obligation is 383, then inventories are reduced by 12 (a credit in assets, which is essentially an increase in liabilities), pushing it to 395?
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