Preparation Of Cash Flow Forecast


Lulu’s Lemons Ltd. sells vehicles. The company is planning its cash needs for the month of January, 2015. In the past, Lulu’s has had to borrow money during the post-Christmas season to offset a significant decline in sales. The following information has been assembled to assist in preparing a cash flow forecast for January.

  1. January 2015 income statement:

Sales                $500,000

Cost of goods sold                  350,000

Gross profit                 150,000

Variable selling expenses        $25,000

Fixed administrative expenses            30,000    55,000

Forecast net operating income                        $95,000

  1. Sales are 100% on credit.
  2. Credit sales are collected over a three-month period: 30% is collected in the following month, 20% in the second month following sale, and 40% in the third month following sale. 10% of sales revenue is never collected. October 2014 sales totaled $600,000. November sales totaled $600,000 and December sales totaled $700,000.
  3. 100% of a month’s inventory purchases are paid in the following month. Accounts payable relate solely to inventory purchases. At December 31, these totaled $422,500.
  4. The company maintains its ending inventory levels at 150% of the cost of the merchandise to be sold in the following month. The merchandise inventory at December 31, 2014 was $525,000. February 2015 sales are budgeted at $400,000. Gross profit is expected to decline from the usual 30% to 25%.
  5. The company pays $10,000 cash dividends to shareholders each month.
  6. The cash balance at December 31 was $30,000; the company must maintain a cash balance of at least this amount at the end of each month.
  7. The company can borrow and repay its operating loan in increments of $10,000 at the end of each month, up to a total loan balance of $500,000. The interest rate on this loan is 1/2% per month. The operating loan balance at December 31 is $50,000.


Prepare a cash flow forecast for Lulu’s for January 2015. Include appropriate supporting schedules.



The question belongs to Accounting and it discusses about preparation of cash flow forecast for a company.

Total Word Count 82

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