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Using a spreadsheet may help you to produce your cash flow forecast. Remember here that £150,000 of the initial £200,000 has already been spent. Hence, your opening bank balance should be £50,000

The scenario

A group of friends have formed a new business called Fashion Clothing, an online and mail-order clothing business, in which they have invested £200,000 of their own capital.

They intend to manufacture and sell quality clothes. They have set up the business and are selling direct to the final consumer, using a combination of aggressive marketing across a range of different media and also with the use of an automated website that accepts online orders.

To support this, they also have a department of telephone sales and support staff ready to help customers. The sales staff work in teams and receive a basic salary plus commission for each successful sale. By the start of July 20X5, they have spent £150,000 on tangible non-current assets, and they currently have the remaining £50,000 in their business bank account.

They provide you with the following forecasted figures for their first 6 months of trading:



Sales for the next 6 months


Cost of the materials used up in sales


Labour costs for the 6 months


Other expenses for the 6 months, including marketing costs and £15,000 depreciation of tangible non-current assets


Materials purchased during the 6 months


Their projected cash receipts and payments are estimated to be as follows:

Month (20X5)

Sales Receipts

Payments for Materials

Labour and Other Expenses








These payments are divided equally over each of the 6 months.




















In addition to the above, they expect to have to pay a tax bill of £20,000 in December 20X5 and also plan to buy (and pay for) £30,000 additional tangible non-current assets in that same month. All transactions will go through their business bank account.

To complete this Individual Case Study Assignment


Provide a Business Report (1,000 words for the main body of the report) for the friends who have invested in Fashion Clothing, commenting on the business’ prospects and including the following five financial statements:

  1. An opening statement of financial position at the start of July 20X5.
  2. A monthly cash flow forecast, showing the bank balance at the end of each of the 6 months and indicating what level of overdraft facilities the friends need to negotiate with their bank manager. Explain what additional expense they should take into account as a result of needing this financial assistance (overdraft).
  3. A projected income statement for the first 6 months of trading.
  4. A projected statement of financial position for Fashion Clothing at the end of its first 6 months of operations.
  5. A projected statement of cash flows for the first 6 months of trading and using the indirect method.

Since none of the investors have a background in accounting and finance, you should also explain what each of these statements means as a part of your report.

Keep the following in mind:

  1. Using a spreadsheet may help you to produce your cash flow forecast. Remember here that £150,000 of the initial £200,000 has already been spent. Hence, your opening bank balance should be £50,000. Your closing bank balance should be included in your statement of financial position as at 31.12.20X5.
  2. Think carefully about the £15,000 depreciation charge when working out your monthly cash outflows for labour and other expenses.
  3. Also think carefully about the figures for closing stocks (inventories), creditors (payables) and debtors (receivables).
  4. Please remember that your qualitative analysis and explanation of your five statements are just as important as the calculations themselves. These, together with your presentation of a professional report, will contribute towards your grade for this assignment.
  5. Please be sure to re-visit the Key Concept Overviews for Weeks 1 and 2, as well as Week 3. These should serve as a reminder of the accruals concept, plus the difference between a cash flow forecast and a statement of cash flows. They also include detailed numerical examples that should assist with your calculations for your financial statements.

Ideally a business report should be produced with a suitable structure and quality of discussion around the following key areas:

Executive summary

Table of contents

List of figures

  1. Introduction
  2. Main financial findings.

2.1 Summary of the first 6 months business operations

2.2 Financial accounting statements

  1. Analysis

3.1 Initial analysis in context of the three financial statements.

3.2 Investigations to increase efficiency

  1. Conclusion
  2. References
    • ANNEX I: Statement of financial position Fashion Clothing – 01.07.20X5 and 31.12.20X5
    • ANNEX II: Income statement Fashion Clothing – 6 months to 31.12.20X5
    • ANNEX III: Statement of cash flows Fashion Clothing – 6 months to 31.12.20X5
    • ANNEX IV: Projected cash flow forecast for the first 6 months of trading

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