6.1 Explain why: 6.1.1 Depreciation and bad debts will not appear in a Cash Budget - NSC Accounting - Question 6 - 2017 - Paper 1

A Cash Budget is focused solely on cash inflows and outflows within a specific period, helping to manage liquidity and ensure that the organization can meet its financial obligations. In contrast, a Projected Income Statement includes both cash and non-cash items, such as revenues earned but not yet received (accrual accounting). The Income Statement is broader, providing a measure of overall profitability rather than immediate cash position.

To calculate Cash sales for December, we take 40% of December's credit sales:

ext{Cash sales} = 210,000 imes rac{40}{100} = 140,000

To calculate the Rent income for November, we consider the 8% increase for December:

ext{Rent income} = rac{19,710 imes 100}{108} = 18,250

Calculating Payments to creditors involves understanding the relationship among the credit purchases and the payments on previous purchases. Given the Trade Credit terms:

ext{Payments} = 186,000 imes rac{100}{60} = 310,000 The total amount for November will specifically be:

$198,400$

The Salaries and wages remain constant at R36,600 for November and same for December. Thus the value remains as follows:

$ext{Salaries and wages} = 109,400$

To determine the Loan instalment for December, calculate the total loan repayment including interest:

ext{Loan payment} = (13,625 - 1,625) + (150,000 - 12,000) imes rac{13}{12} = 13,495

1. The company has a sound credit policy, ensuring that only 50% of the debtors benefit from the credit terms, reducing risk.
2. The management uses effective strategies to monitor collections, allowing them to manage cash flow efficiently, ensuring debtors are incentivized to pay their debts promptly.