Using the following information based on expected sales to forecast the monthly
ID: 2590153 • Letter: U
Question
Using the following information based on expected sales to forecast the monthly cash collections, accounts receivable balance, monthly cash disbursements, net cash flows, and cash surplus / deficit at the end of each month in the fourth quarter of 2017 (October - December 2017). Do not allow your firm to have a cash balance below the minimum cash balance and only borrow what you need. ALL SALES ARE MADE ON CREDIT.
a. In September 2017, sales were $50,000.
b. The firm’s total sales in 2016 were $2,028,000. The firm's accounts receivable balance on December 31, 2015 was $35,000. The firm's accounts receivable balance on December 31, 2016 was $65,000.
c. Accounts payable are 60% of sales
d. Operating expenses are 10% of sales
e. The firm plans to purchase equipment in October costing $125,000
f. Beginning Cash Balance in October= $25,000
g. Minimum Cash Balance = $5,000
h. Assume there is an annual interest rate of 18% on short term debt and that the firm starts with no short term borrowing.
i. Sales are expected to be $40,000 for October 2017, $400,000 for November 2017, and $100,000 for December 2017.
What is the firm's accounts receivable turnover?
What is the firm's accounts receivable period?
What is the firm's accounts receivable balance at the beginning of October 2017?
What is the firm's total cash collections for the month of October 2017?
What is the firm's total cash collections for the month of November 2017?
What is the firm's total cash collections for the month of December 2017?
What is the firm's total cash disbursements for the month of October 2017?
What is the firm's total cash disbursements for the month of November 2017?
What is the firm's total cash disbursements for the month of December 2017?
What is the firm's short term debt at the end of October 2017?
What is the firm's short term debt at the end of November 2017?
What is the firm's short term debt at the end of December 2017?
Explanation / Answer
1. Account Receivable Turnover : Credit Sales / Average Debtors
2028000/ (35000+65000)/2 = 2028000/50000
Therefore Accounts Receivable Turnover = 40.56 times
2. Account Receivable period = Average Debtors / Credit Sales X 365
50000/2028000 X 365 = 8.9999 Days which is 9 days
Since collection period is 9 days . Credit Sales collection are made in the same month
3. Therefore accounts receivable balance at the beginning of October 2017 shall be $50000
4.
total cash collections for the month of October 2017- $ 40000
total cash collections for the month of November 2017 - $4,00,000
total cash collections for the month of December 2017 -$ 1,00,000
5.
total cash disbursed for the month of October 2017- $ 151400
total cash disbursed for the month of November 2017 - $2,64,000 (without Interest)
total cash disbursed for the month of December 2017 -$ 66,000(without Interest)
6.
Short Term Debt for the month of October 2017- $ 91400
Short Term Debt for the month of November 2017 - $1,31,000
Short Term Debt for the month of December 2017 -$ 61,000
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