Compute a cash budget from the information given.

6 months of trading for a small business start-up

65 000 £1 ordinary shares were issued for cash on 1st of January

Sales are budgeted at £25,000 in January, £50,000 in February, £80,000 in March, and then rising £20,000 by each month. Of these sales, cash sales were expected to be £20,000 in January, £40,000 in February and £50,000 thereafter. 70% of credit customers were expected to pay after 1 month for a cash discount of 5%. The remaining customers will pay after 3 months, 3% of them are expected to be bad debts.

A long term loan is to be raised of £60,000 on March 1st.

Purchases of materials are planned in January of £20,000, £40,000 in February, £60,000 in March, and increasing by £5000 thereafter. Suppliers have granted two months’ credit.

Wages and salaries will cost £15,000 from January to April and rise to £20,000 thereafter. Tax deductions of 20% of labour cost will be paid to the Inland Revenue one month after the deduction.

Rent costs £15,000 per annum to be paid quarterly in advance

Insurance for the year of £8 000 is to be paid in January

Rates of £25,000 per annum are to be paid half-yearly in March and September

A special advertising promotion is budgeted for January of £30,000 with costs dropping to £10,000 from February to April, and dropping to £5,000 from May to June. Paid one month in arrears.

A vehicle costing £15,000 will be bought. £10,000 will be paid as deposit in March with two further payments of £2,500 to be made in April and May.

Premises will be purchased in February for £70,000.

An overdraft has been utilised with 12% interest.

Compute the cash flows first and then complete the cash budget.

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