Working from the following condensed cash flow statement, recalculate the effect

Question

Working from the following condensed cash flow statement, recalculate the effect on cash resources if the 'days in debtors' and 'days in creditors' were each 53 days. Funds provided by profits Use of Funds: (Increase) in Debtors Increase in Creditors Total Uses Increases in Cash Resources Days purchases represented by current creditors' balance are 69 days. Annual purchases are $110,000. Days sales represented by current debtors' balances are 67. Annual sales are $140,000. Assume the company was set up on the first day of this financial year, so that opening balances are $0.

Explanation / Answer

Funds provided byprofits                   87,000 (Increase indebtors)                        -20,319 Increase increditors                          15,965 Totaluses                                       - 4,354 Increases in cashresources               82,646 Explanation Days in debtors = 365                               receiv.Turnover R.T.O = 365 /53            = 6.89 Calculation of receivables Net sales    =R.T.O Av.receivables 140,000 = 20,319 6.89 Payables Days payables = 365 / Payables T.O Payables T.O = 365 / 53                      = 6.89 calculation of payables cost of sales = 6.89 Av.Payables Average payables   = 110,000                                    6.89                           = 15,965

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