Cash Management Question from GreenLights

elenmarkova

Hi guys,

Could anyone help me with this question?

P Ltd purchases its goods on credit terms. Of the total purchases each month 25% will be payable in the month of purchase, with the remaining payable one month after purchase. At 1 January the trade payables balance was £11,000. The business estimates that its total purchases in January will be £15,200, and in February £16,350. The payments for purchases to be shown in the cash budget for January will be?

I am not sure what the answer is and how to use the figure 'the trade payables balance £11,000'?

Any help will be much appreciated.

Thanks !

crispy

Hello,

I may be wrong but would it be just as simple as,

- Paying 100% balance of the payables brought forward (being the credit purchases from Dec)
- Paying 25% of January Purchases (being the cash purchases in Jan)

So 11,000 + (£15,200 * 25%) = £ 14,800 Cash Paid In Jan, with payables carried forward of £ 11,400 (15,200 - 3,800)

Nps

I agree with Crispy.

The £11,000 is just the remaining 75% of the December purchases that are paid in the following month (ie. January).

The Feb figures are just there to make sure you can pick out the right figures (unless referred to in the next bit of the question of course).

elenmarkova

Hi Crispy,
Many thanks for your reply. I tried with your answer and it is correct. It looks simple to me now
Many many thanks again!!! I will have the exam tonight so hopefully I will pass it.

crispy

Hi,

Best of luck with the test, I think with cash budget type questions you need to set out your workings neat/clearly in order not to get too much of a muddle with when items get actually paid. I am happy to help, answering questions takes my mind away from the montonous drivel spouted by some of my colleagues . Thank you to Nps1976 for confirming my answer, I have passed aat quite a few years ago but am embarassingly rusty and unsure my answers are 100%.

Nps

Crispy,

I'm the same. I want to help but as it is a while since I studied it, I do it from memory and hope that I don't one day make a ridiculously simple error/omission in the full spotlight of a public forum! (Hence I often add a disclaimer like yours and then wait for someone to confirm I'm right).

elenmarkova

Just to let you know guys that I passed the exam successfully , thanks for your help Crispy

crispy

Well Done That's another unit that can now be striked off. If your Maths is pretty good I don't think that costs and revenue should cause too many problems. Just having 5 days is cutting it pretty fine, if you have already entered then may as well give it a go - there are previous exams that can be printed from this website.

My advice, have a go - but don't let it consume yourself too much that much is causes you stress. If you have tried but it doesn't work out then so be it - there will be another chance when you are better prepared.