Question

The Pat Company has estimated its activity for May 2020. Selected data from these estimated amounts are as follows:

Sales $350,000

Gross Profit (based on sales) 30%

Increase in trade A/R during May $10,000

Change in A/P during May $0

Increase in inventory during May $5,000

Variable selling and administrative expenses includes a charge for uncollectible accounts of 1% of sales. Depreciation expense of $20,000 per month is included in fixed selling and administrative expenses.

What are the estimated cash payments from operations for May?

Answer 1

Sales	$                                 3,50,000
Gross profit	$                                 1,05,000
Depreciation expense	$                                    20,000
Variable selling and administrative expenses	$                                      3,500
Net Profit	$                                    81,500
Cashflow from operating activities
Particulars	Amounts
Net profit as per P& L A/c	$                                    81,500
Add: Non cash items
Depreciation expense	$                                    20,000
Provision for doubtful account	$                                      3,500
Less: Non cash items
Add: Increase in Current liab & decrease in current assets
Decrease in account payables	$                                             -
Less: Decrease in Current liab & Increase in current assets
Increase in inventory	$                                     -5,000
Increase in trade receivables	$                                   -10,000
Cashflow before Tax	$                                    90,000
Less: Tax paid
Cashflow from operations	$                                    90,000

Cash generated are $ 90,000

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