Question

Your accountant for your early stage company has provided a Profit and Loss statement for the last month. Based on these results, the accountant has also developed a Pro Forma P&L for the next month as shown below:

Pro Forma Income Statement May 1 – 31, 2020
Sales	430,000
Less Cost of Goods Sold	200,000
Gross Profit	230,000
Operating Expenses:
Salaries	118,300
Rent	10,750
Utilities	4,730
Advertising	14,300
Selling Expenses	5,160
Insurance	10,320
Payroll and Misc. Taxes	12,900
Depreciation	6,450
Office Expenses	9,890
Total Operating Expenses	192,800
Operating Profit (before taxes)	37,200

Question:

You need to buy some expensive computer equipment by the end of May and are trying to figure out how much cash the business will generate in May. Assume that your customers are on a 30-day billing cycle and 98% of your invoices are paid within 30 days. Not considering other sources of cash, e.g. customers paying prior invoices or the business selling off unused equipment, how much cash is your business projected to generate in November based on your analysis of this Pro Forma P&L?

A . $35,050

B. $28,375

C. $42,550

D. $38,355

Answer 1

Answer

A.$35,050.

Cash balance = cash received from sales - cost of goods sold - cash operating expense
= $421,400 -$200,000-$186,350	$35,050.00
Cash received from sales(98%*430,000)	$4,21,400.00
Cash operating expense = Total operating expense - depreciation
$192800 -$6450	$1,86,350.00
Alternative workings.
Sales	430000
Cash received from sales(98%*430,000)	421400
Less cash expense:
Cost of goods sold	$2,00,000.00
Salaries	$1,18,300.00
Rent	$10,750.00
Utilities	$4,730.00
Adversiting	$14,300.00
Insurance	$10,320.00
Selling expense	$5,160.00
Pay roll and Misc. tax	$12,900.00
Office Expense	$9,890.00
Total	$3,86,350.00
Projected cash balance	$35,050.00