You own a new restaurant that is due to open on June 1.

The restaurant expects to take in $1,500 a day in sales revenue and is open seven days a week. Sales revenue is estimated to be 80 percent cash and 20 percent credit. The payments on credit sales are not expected until the end of the month following the sale.

Labor and food cost combined will be 75 percent of sales revenue.

Both these expenses will be on a cash basis.

Other operating costs are estimated to be 10 percent of sales revenue.

These costs will not have to be paid until the month following the incurrence of the cost.

Depreciation is $2,000 a month. Rent is $600 a month, payable in advance on the first of each month.

Principal payments on a loan you made to get into business are

$3,000 a month. The first payment is due on June 15.

Interest expense of $300 will be paid each month. You have only $500 cash on hand on June 1.

You will not be able to borrow any more money, and you have no income of your own other than the money generated by your new restaurant venture.

a. Produce the budgeted income statement for the restaurant for the month of June.

b. Prepare the restaurant’s cash budget for the month of June.

c. Comment about the results shown by these two statements, with particular reference to any possible financial difficulties you might have.