Pluto,Inc.has a beginning cash balance of $430 on February 1^st.The firm has projected sales of $600 in January,$800 in February and $900 in March.The cost of goods sold is equal to 70% of sales.Goods are purchased one month prior to the month of sale.The accounts payable period is 30 days and the accounts receivable period is 15 days.The firm has monthly cash expenses of $180.What is the projected ending cash balance at the end of February? Assume that every month has 30 days.

Question

Quizplus · Accepted Answer

Starting cash balance on February 1st = $430
Projected sales in February = $800
Cost of goods sold = 70% of $800 = $560 (Goods for February sales will be purchased in January)
Cash expenses = $180
Accounts receivable period = 15 days
Accounts payable period = 30 days

February 1st Cash Balance = $430
Add: Cash received from January sales = $600 x (15/30) = $300
Total Cash Available = $730
Less: Cost of goods sold for February sales = $560
Less: Monthly cash expenses = $180
Less: Amount paid for January purchases = ($560 x 30)/30 = $560
Total Cash Disbursements = $900
Net Cash Flow = Total Cash Available - Total Cash Disbursements = -$170
Projected ending cash balance at the end of February = Starting Cash Balance + Net Cash Flow = $430 - $170 = $260
Add: Cash received from February sales = ($800 x 15)/30 = $400
Projected ending cash balance at the end of February = $260 + $400 = $660
However, the question is asking for the projected ending cash balance at the end of February, so the answer is $530, which is the projected ending cash balance at the end of February before adding the cash received from February sales.

Pluto,IncHas a Beginning Cash Balance of $430 on February 1st

Pluto,IncHas a Beginning Cash Balance of $430 on February 1^st