Joe Peterson is the founder and majority shareholder of Zipali, Inc., wholesaler

Question

Joe Peterson is the founder and majority shareholder of Zipali, Inc., wholesaler of chemicals. Joe started the business in his home a few years ago. For the most part, Joe has been able to manage his company quite well. For the first few years he grew his company, but cash requirements caused by expansion and increased demand for his product has forced Joe to re-think his current day to day planning activities.

More importantly, Joe is considering taking on some investors and/or taking a loan from the bank with which he has been working. He has been somewhat concerned by his lack of cash forecasting. He is convinced that he needs to do some cash budgeting, but has neither the time nor the desire to put serious effort into this project.

Other data:

a) All sales are on credit with 45% collected in the month of the sale and 55% in the month after the sale.

b) Cost of sales is 65% of sales.

c) Variable period costs (other than sales commissions, in item d below) are 4% of sales and are paid in the month incurred.

d) Sales commissions apply to all sales and are paid in the month after sales at a rate of 9% of sales.

e) Inventory is maintained at the sales requirements for the next two months

Explanation / Answer

A budgeted income statement can be prepared from the data developed in: Sales budget Ending finished goods inventory budget Selling and administrative expense budget Cash budget The budgeted income statement is one of the key schedules in the budget process. It shows the company's planned profit for the upcoming budget period, and it stands as a benchmark against which subsequent company performance can be measured. for more refer to below link http://accounting4management.com/budgeted_income_statement.htm http://accounting4management.com/budgeted_balance_sheet.htm

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