January February March April May June

Sales Forecast ₱1,000 ₱2,000 ₱3,000 ₱2,000 ₱1,000 ₱1,000

Assumptions:
(1) Cash sales are 10% of current month’s sales.
(2) Collections on accounts receivable are 60% of previous month’s sales and 30% of the previous two month’s sales.(3)
Purchases are 50% of two-months-ahead sales.
(4) Payments on accounts are 20% of current month’s purchases, plus 80% of previous month’s purchases.
(5) Wages are 5% of current month’s sales.
(6) Selling and administrative expenses are 10% of current month’s sales.
(7) July and August sales are forecasted to be 1,000 each month.
(8) Depreciation is 1% of monthly gross plant and equipment.
(9) Sales for November and December of last year are 2,000 and 1,000 respectively.
(10) Minumum monthly cash balance should be at least 1000 and any excess of 2000 can be used to pay off bank loans.
 TABLE 1. Monthly Cash Budget, January through June of Year 1

January February March April May June

Sales ₱1,000 ₱2,000 ₱3,000 ₱2,000 ₱1,000 ₱1,000
Operating Cash Flows
Cash Inflows
Collections on accounts receivables:
Collections on current month’s sales 100 200 300 200 100 100
Collections from previous month’s sales 600 600 1,200 1,800 1,200 600
Collections from two months’ previous sales 600 300 300 600 900 600
Operating cash inflows ₱1,300 ₱1,100 ₱1,800 ₱2,600 ₱2,200 ₱1,300
Cash Outflows
Payments of purchases on account:
Payments for current month’s purchases ₱300 ₱200 ₱100 ₱100 ₱100 ₱100
Payments for previous month’s purchases 800 1,200 800 400 400 400
Wages 50 100 150 100 50 50
Selling and administrative expenses 100 200 300 200 100 100
Operating cash outflows ₱1,250 ₱1,700 ₱1,350 ₱800 ₱650 ₱650
Operating net cash flow ₱50 (₱600.00) ₱450 ₱1,800 ₱1,550 ₱650
Nonoperating Cash Flows
Cash Inflows
Retirements of plant and equipment ₱0 ₱0 ₱0 ₱500 ₱0 ₱0
Issuance of long-term debt 0 3,000 0 0 0 0
Issuance of common stock 0 0 0 0 0 0
Nonoperating cash inflows ₱0 ₱3,000 ₱0 ₱500 ₱0 ₱0
Cash Outflows
Acquisitions of plant and equipment ₱1,000 ₱3,000 ₱0 ₱0 ₱3,500 ₱0
Payment of cash dividends 0 0 100 0 0 100
Retirement of long-term debt 0 0 0 0 0 1,000
Retirement of common stock 0 0 0 0 0 0
Interest on long-term debt 10 10 10 10 10 10
Taxes 69 165 271 168 53 53
Nonoperating cash outflows ₱1,079 ₱3,175 ₱381 ₱178 ₱3,563 ₱1,163

Nonoperating cash flows –1,079 –175 –381 322 –3,563 –1,163

Analysis of cash and marketable securities
Balance, beginning of month ₱1,500.00 ₱1,000.00 ₱1,000.00 ₱1,069.25 ₱2,000.00 ₱1,000.00
Net cash flows for the month (1029) (775.33) ₱69.25 ₱2,122.34 (2012.55) (513.05)
Balance without any change in bank loans ₱471.00 ₱224.67 ₱1,069.25 ₱3,191.59 -₱12.55 ₱486.95
Bank loans to maintain minimum balance ₱529.00 ₱775.33 ₱0.00 ₱0.00 ₱1,012.55 ₱513.05
Available to pay off bank loans ₱0.00 ₱0.00 ₱0.00 ₱1,191.59 ₱0.00 ₱0.00
Balance, end of month ₱1,000.00 ₱1,000.00 ₱1,069.25 ₱2,000.00 ₱1,000.00 ₱1,000.00
 TABLE 2. Company Analysis of Monthly Changes in Accounts, January through June of Year 1

January February March April May June

Accounts receivable
Month's beginning balance ₱2,000 ₱1,700 ₱2,600 ₱3,800 ₱3,200 ₱2,000
Plus credit sales during the month 900 1,800 2,700 1,800 900 900
Less collections on accounts 1,200 900 1,500 2,400 2,100 1,200
Month's ending balance ₱1,700 ₱2,600 ₱3,800 ₱3,200 ₱2,000 ₱1,700
Inventory
Month's beginning balance ₱2,500 ₱3,500 ₱3,500 ₱2,500 ₱2,000 ₱2,000
Plus purchases 1,500 1,000 500 500 500 500
Plus wages and other production expenses 50 100 150 100 50 50
Less goods sold 550 1,100 1,650 1,100 550 550
Month's ending balance ₱3,500 ₱3,500 ₱2,500 ₱2,000 ₱2,000 ₱2,000
Accounts payable
Month's beginning balance ₱2,000 ₱2,400 ₱2,000 ₱1,600 ₱1,600 ₱1,600
Plus purchases on account 1,200 800 400 400 400 400
Less payments on account 800 1,200 800 400 400 400
Month's ending balance ₱2,400 ₱2,000 ₱1,600 ₱1,600 ₱1,600 ₱1,600
Bank loans
Month's beginning balance ₱1,000 ₱1,529 ₱2,304 ₱2,304 ₱1,113 ₱2,125
Plus borrowings 529 775 0 0 1,013 513
Less repayment of loans 0 0 0 1,192 0 0
Month’s ending balance ₱1,529 ₱2,304 ₱2,304 ₱1,113 ₱2,125 ₱2,638
Plant and equipment
Month's beginning balance ₱10,000 ₱10,890 ₱13,751 ₱13,614 ₱12,982 ₱16,318
Plus acquisitions 1000 3000 ₱0 0 3500 0
Less retirements 0 0 0 500 0 0
Less depreciations 110 139 137 131 165 163
Month's ending balance ₱10,890 ₱13,751 ₱13,614 ₱12,982 ₱16,318 ₱16,154
Long-term debt
Month's beginning balance ₱5,000 ₱5,000 ₱8,000 ₱8,000 ₱8,000 ₱8,000
Plus issuances of long-term debt 0 3000 0 0 0 0
Less retirements of long-term debt 0 0 0 0 0 1000
Month's ending balance ₱5,000 ₱8,000 ₱8,000 ₱8,000 ₱8,000 ₱7,000
Common equity
Month's beginning balance ₱8,000 ₱8,161 ₱8,547 ₱9,079 ₱9,470 ₱9,592
Plus earnings retained during the month 161 386 532 391 123 24
Plus issuances of common stock 0 0 0 0 0 0
Less retirements of common stock 0 0 0 0 0 0
Month's ending balance ₱8,161 ₱8,547 ₱9,079 ₱9,470 ₱9,592 ₱9,616
 TABLE 3.1 Monthly Pro Forma Balance Sheet January through June of Year 1

January February March April May June

Assets
Cash and marketable securities ₱1,000 ₱1,000 ₱1,069 ₱2,000 ₱1,000 ₱1,000
Accounts receivable 1,700 2,600 3,800 3,200 2,000 1,700
Inventories 3,500 3,500 2,500 2,000 2,000 2,000
Plant and equipment 10,890 13,751 13,614 12,982 16,318 16,154
Total Assets ₱17,090 ₱20,851 ₱20,983 ₱20,182 ₱21,318 ₱20,854
Liabilities and equity
Accounts payable ₱2,400 ₱2,000 ₱1,600 ₱1,600 ₱1,600 ₱1,600
Bank loans 1,529 2,304 2,304 1,113 2,125 2,638
Long-term debt 5,000 8,000 8,000 8,000 8,000 7,000
Common equity 8,161 8,547 9,079 9,470 9,592 9,616
Total Liabilities and Equity ₱17,090 ₱20,851 ₱20,983 ₱20,182 ₱21,318 ₱20,854
 TABLE 3.2 Monthly Pro Forma Income Statement January through June of Year 1

January February March April May June

Sales ₱1,000 ₱2,000 ₱3,000 ₱2,000 ₱1,000 ₱1,000
Less cost of goods sold 550 1100 1650 1100 550 550
Less depreciation 110 139 138 131 165 163
Gross profit ₱340 ₱761 ₱1,212 ₱769 ₱285 ₱287
Less selling and administrative expenses 100 200 300 200 100 100
Earnings before interest and taxes ₱240 ₱561 ₱912 ₱569 ₱185 ₱187
Less interest 10 10 10 10 10 10
Earnings before taxes ₱230 ₱551 ₱902 ₱559 ₱175 ₱177
Less taxes 69 165 271 168 53 53
Net income ₱161 ₱386 ₱632 ₱391 ₱123 ₱124
Less cash dividends 0 0 100 0 0 100
Retained earnings ₱161 ₱386 ₱532 ₱391 ₱123 ₱24