Trade receivables, trade payables and capital budgets

Trade receivables budget

For each month:

Opening trade receivables + credit sales - cash received from customers (- discounts allowed, - irrecoverable debts) = closing trade receivables.

The closing balance of one month is the opening balance of the next. Examiners report candidates showing only receipts: the budget must end with the receivables still owed.

Customers pay half in the month after sale and half the month after that; opening £30,000 is received £18,000 in Jan and £12,000 in Feb

Trade payables budget

Opening trade payables + credit purchases - cash paid to suppliers (- discounts received) = closing trade payables.

Credit terms received are a source of short-term finance; taking a discount for early payment improves profit but reduces cash sooner.

Capital budget

A capital budget shows planned capital expenditure (non-current assets) and the sources of long-term finance. For a new company, the sources might be directors, private investors, an investment fund, bank loans and a share flotation.

Example: a new plc needs £5,000,000. Directors provide 15%, a bank lends £1,200,000, flotation provides 40% and an investment fund provides the rest.

Capital budget

Worked example

Credit purchases are £20,000 in April and £24,000 in May. Suppliers are paid in the month after purchase. Opening trade payables on 1 April are £18,000 (all paid in April). Prepare the trade payables budget for April and May.

1. April: 18,000 + 20,000 - 18,000 = 20,000
2. May: 20,000 + 24,000 - 20,000 = 24,000

Answer: Closing trade payables: April £20,000; May £24,000

Check yourself

1. Opening trade receivables £42,000; credit sales £65,000; cash received from customers £58,000; irrecoverable debt written off £1,500. Calculate closing trade receivables.
   Show answer

   £47500. 42,000 + 65,000 - 58,000 - 1,500 = £47,500.

2. Opening trade payables £31,000; credit purchases £48,000; payments to suppliers £44,000; discounts received £900. Calculate closing trade payables.
   Show answer

   £34100. 31,000 + 48,000 - 44,000 - 900 = £34,100.

3. Credit sales: June £50,000, July £60,000. Customers pay 40% in the month after sale and 60% two months after. How much is received in August from these two months' sales?
   Show answer

   £54000. 60% of June (30,000) + 40% of July (24,000) = £54,000.

4. Using the same terms (40% after one month, 60% after two), how much of June's and July's sales is still owed at the end of July?
   Show answer

   £90000. In July, 40% of June's sales (£20,000) is received; nothing from July's sales yet. Owed = 50,000 - 20,000 + 60,000 = £90,000.

5. A new company needs £3,000,000. Directors provide 20%, a bank loan provides £900,000 and the rest comes from a flotation. How much comes from the flotation?
   Show answer

   £1500000. 3,000,000 - 600,000 - 900,000 = £1,500,000.

6. Flotation must provide 40% of a company's total funding. All other sources together provide £2,400,000. How much must the flotation raise?
   Show answer

   £1600000. Other sources are 60% of the total, so flotation = 2,400,000 x 40/60 = £1,600,000.

7. Give one advantage and one disadvantage to a company of buying on one month's credit from suppliers.
   Show answer

   Advantage: it keeps cash in the business longer, which improves liquidity and acts as free short-term finance. Disadvantage: the company may lose cash discounts for prompt payment, and late payment may damage the relationship with suppliers.. Examiners wanted the company's viewpoint as a buyer: credit helps cash flow but may cost discounts.

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Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting specification (XAC11/YAC11), Issue 2
• Pearson Edexcel IAL Accounting WAC12 examiners' report, October 2022
• Pearson Edexcel IAL Accounting WAC12 examiners' report, June 2025
• Pearson Edexcel IAL Accounting WAC12 Unit 2 mark scheme, October 2022

Last updated 8 November 2026. Spotted a mistake? Tell us.