Question

Paymore Products places orders for goods equal to 75% of its sales forecast in the next quarter which has been provided in the below table.

	Quarter in Coming Year					Following Year
	First	Second	Third	Fourth		First Quarter
Sales forecast	$420	$342	$346	$394		$394

On average, one-third of sales are collected in the quarter that they are sold, and two-thirds are collected in the following quarter. Assume that sales in the last quarter of the previous year were $346. Also, one third of the orders are paid for in the current month and then two thirds of the next quarter's orders are paid in advance. Assuming that Paymore’s labor and administrative expenses are $75 per quarter and that interest on long-term debt is $50 per quarter, work out the net cash flow for Paymore for the coming year using the below table.

Answer 1

	Quarter
	First	Second	Third	Fourth
Sources of cash
Collection on accounts receivables	370.67	394	343.33	362
Uses of cash:
Payments of accounts payable	276	258.5	283.5	295.5
Labor and administrative expense	75	75	75	75
Interest on long term debt	50	50	50	50
Total use of cash	401	383.5	408.5	420.5
Net cash inflow/(outflow)	-30.33	10.5	-65.17	-58.5

Working note :

1]
	Quarter
Collection on accounts receivables :	First	Second	Third	Fourth
1/3rd of current quarter sales	140	114	115.33	131.33
2/3rd of previous quarter sales	230.67	280	228	230.67
Collection on accounts receivables :	370.67	394	343.33	362

2]
	Quarter in coming year	Following year
	First	Second	Third	Fourth	First quarter
Purchases [ 75% of sales ]	315	256.5	259.5	295.5	295.5
Payments of accounts payable :
1/3rd of current quarter's purchases	105	85.5	86.5	98.5
2/3rd of following quarter's purchases	171	173	197	197
Payments of accounts payable	276	258.5	283.5	295.5