Question

A business sells $ 60,000 and $ 80,000 worth of goods in January and February respectively. The controller indicates that 50% of the customers pay their bills on a cash basis, 40% in 30 days and 10% in 60 days. During the month of January and February, the company purchased 30,000 and $50,000 worth of goods from suppliers respectively. The company’s policy is to pay 50% on a cash basis and the other 50% during the following 30 days. The monthly administrative expenses are broken down as follows:

Salaries	$ 12,000
Depreciation	2,000
Rent	3,000
Office supplies	500
Communication services	500

The company’s opening cash balance for the month of January is $ 1,000.

1. Monthly cash receipts from sales are as follows:

January ________________________

February ________________________

March ________________________

2. Monthly disbursements for purchases is as follows:

January ________________________

February ________________________

March ________________________

3. Monthly administrative expenses are as follows:

January ________________________

February ________________________

March ________________________

4. Monthly cash disbursements is as follows:

January ________________________

February ________________________

March ________________________

5. Monthly cash flow is as follows:

January ________________________

February ________________________

March ________________________

6. Monthly cumulative cash flow is as follows:

January ________________________

February ________________________

March ________________________

Answer 1

First list down the given information:

Particulars	Jan	Feb
Monthly Sales	$ 60000	$ 80000
Monthly Purchases	$ 30000	$ 50000
Administrative Expenses
Salaries	$ 12000	$ 12000
Depreciation	$ 2000	$ 2000
Rent	$ 3000	$ 3000
Office Supplies	$ 500	$ 500
Communication Services	$ 500	$ 500

Following is the pattern of cash collections/ disbursements

Particulars
Monthly Collections	50% in cash	Collections in the same month
	40% in 30 days	Collections in subsequent month
	10% in 60 days	Collections in 2 months following to month for which sales pertains
Disbursements for purchases	50% in cash	Payments in the same month
	50% in 30 days	Payments in the subsequent month
Salaries	100%	Payments in the same month
Depreciation	100%	Payments are non cash in nature, hence will not form part of cash flows
Rent	100%	Payments in the same month
Office Supplies	100%	Payments in the same month
Communication Services	100%	Payments in the same month

Please find below the necessary replies:

1) Monthly cash receipts from sales are as follows:

Particulars	Jan	Feb	Mar
Same month collections (50% of sales)	$30000	$40000	0
Collections in 30 days (40% of sales)	0	$24000	$32000
Collections in 60 days (10% of sales)	0	0	$6000
Monthly Cash Receipts	$30000	$64000	$38000

Note: since, the question has asked for 3 months cash flows, therefore 10% collections falling in the month of April pertaining to sales of Feb has not taken into consideration

2) Monthly disbursement of purchases are as follows:

Particulars	Jan	Feb	Mar
Same month payments (50% of purchases)	$15000	$25000	0
Payments in 30 days (50% of purchases)	0	$15000	$25000
Monthly disbursements for purchases	$15000	$40000	$25000

3) Monthly administrative expenses are as follows:

Particulars	Jan	Feb	Mar
Salary	$12000	$12000	0
Rent	$3000	$3000	0
Office Supplies	$500	$500	0
Communication Services	$500	$500	0
Monthly Administrative Expenses	$16000	$16000	0

Note: Depreciation is non cash expenses, hence will not form part of cash flow calculation

4) Monthly cash disbursements are as follows:

Particulars	Jan	Feb	Mar
Monthly disbursements for purchases	$15000	$40000	$25000
Monthly Administrative Expenses	$16000	$16000	0
Monthly Cash disbursements	$31000	$56000	$25000

5) Monthly cash flow is as follows:

Particulars	Jan	Feb	Mar
Op. Cash Balances (a)	$1000	0	$8000
Add: Cash receipts (b)	$30000	$64000	$38000
Less: Cash disbursements (c)	-$31000	-$56000	-$25000
Closing Cash Balances (d) = (a)+(b)-(c)	0	$8000	$21000

6) Monthly cumulative cash flow is as follows:

Cumulative cash flow for Jan - Closing cash balances for Jan

Cumulative cash flow for Feb - Cumulative cash flow for Jan + Closing cash balances of Feb

Cumulative cash flow for Mar - Cumulative cash flow for Feb + Closing cash balances of Mar

Particulars	Jan	Feb	Mar
Monthly cumulative cash flows	0	$8000	$29000

Trust you have found the same in order.

Should you need any clarifications, please feel free to comment.