## Cash flow forecasts - numerical questions

Power plc sells computers to the general public through the Internet. They buy their stock for \$600 per computer and sell them for \$1,000 each. The history of the firm for its first 10 weeks of trading is shown below.

When they started the business the three shareholders put in \$100,000 in cash.

Week 1 - they rent a serviced office for \$300 per week, and pay this in cash. This rental is then paid weekly for the remainder of the 10 weeks.
Week 2 - they purchased a batch of 100 computers at a price of \$600 each, paying cash with order. The pay an insurance policy for 6 months. It costs them \$650 cash.
Week 3 - they sell 50 computers for cash, and 20 on two weeks credit.
Week 4 - they purchase another batch of computers. They now buy 200 units at a special price of \$500 each for cash. They sell 50 units on three weeks credit, and 20 for cash.
Week 5 - they sell 30 units for cash and 50 on three weeks credit.
Week 6 - they buy another 200 units for \$500 cash. They also pay wages of \$2,500 cash. No sales this week.
Week 7 - they sell 80 units on three weeks credit.
Week 8 - they buy another 200 units on a very special deal. Cash purchase at \$450 per unit. They sell 50 for cash.
Week 9 - they sell 60 on three weeks credit and 30 for cash.
Week 10 - they buy 200 units on one-month credit. They sell 40 units for cash and 20 on three weeks credit.

#### Question 1

Prepare a chart showing the purchases, sales and stocks of the firm for the trading period of 10 weeks.

#### Question 2

Prepare a cash flow statement for the firm covering these first 10 weeks trading.

#### Question 3

Prepare a profit statement, on a week-by-week basis, for the same 10-week period.

#### Market Mike

Mike Dines has recently begun in business running his own market stall. He wishes to expand and he would need a bank loan. The bank has requested that Mike produces a cash budget for the forthcoming period. He has obtained the following information relating to the next six months. This information is to be used to construct a cash flow forecast for the six months ending 31 December.

1. Purchases and sales are expected to be as follows:
All in \$s Jul Aug Sep Oct Nov Dec
Purchases 890 1040 1190 1260 1350 1670
Sales 1480 1530 1580 1670 1760 2140

1. Purchases are paid for one month in arrears
2. All sales are for cash
3. Trade creditors as at 30 June amounted to \$830
4. A new stall is expected to be purchased in September which would cost \$750. The old stall would be traded in at a value of \$150.
5. Personal drawings are \$500 per month
6. Rent of the market stall patch amounts to \$180 per month but will rise to \$270 in October
7. On 1 July the bank balance was \$750 overdrawn

#### Required

• Prepare a cash budget for the six months ending 31 December.
• Identify three actions that Mike could take to secure this bank loan.