The purpose of this problem is to demonstrate some of the interrelationships in

Question

The purpose of this problem is to demonstrate some of the interrelationships in the budgeting process. Shown below is a very simple balance sheet at January 1, along with a simple budgeted income statement for the month. (Assume dollar amounts are stated in thousands; you also may state dollar amounts in this manner.)

NUTSHELL BALANCE SHEET JANUARY 1

Cash- $40 Accounts Payable- $30

Accounts Receivable- 120 Owner`s Equity- 180

Inventory- 50 Total- 210

Total- 210

NUTSHELL BUDGETED INCOME STATEMENT FOR JANUARY

Sales   . . . . . . . . . . . . . . .   $100

COGS ...............................60

Gross Profit .........................40

Expenses ........................25

Net Income ................... 15

As Nutshell has no plant assets, there is no depreciation expense. Prepare a cash budget for Janu- ary and a budgeted balance sheet as of January 31.
These budgets are to reflect your own assumptions as to the amounts of cash and credit sales, collections of receivables, purchases of inventory, and payments to suppliers. We require only that the cash balance be $50 at January 31, that receivables and inventory change from the January 1 levels, and that the company engage in no “financing” or “investing” activities (as these terms are used in a statement of cash flows).
Clearly state your assumptions as part of your solution, and be prepared to explain in class how they result in the amounts shown in your budgets

Explanation / Answer

Cash Budget For the Month of January Balance Sheet For January Beginning cash balance $40 Assets Add collections from customers 110 Cash 50 Total cash available 150 Accounts Receivable 110 Less cash disbursements: Inventory 80 Payments to suppliers for inventory 75 Total 240 Expenses 25 Total cash disbursements 100 100 Accounts Paybale 45 Ending cash balance 50 Owners Equity 195 Total 240 January 75% of credit sales is paid in next month 90 20% cash sale 20 20% sales are on cash and balance sales are on credit and paid 75% in the next month and 5% following the month sales of january are on Credit Collection from customers= $90 of last month and $20 of this month Closing balance of accounts Receivable= $120+$100-110= $110 Purchases are paid 50% in the month and 25% in the following month and 25% in the next following moth Payment to suppliers= $15 of last month and purchases were $90 so $45= $30+$45= $60 COGs=Opening bal+Purchases-Closing balance=     60=50+x-80 Purcahses= $90

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