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.)

As Nutshell has no plant assets, there is no depreciation expense. Prepare a cash budget for January 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.

Transcribed Image Text:

NUTSHELL BALANCE SHEET JANUARY 1 NUTSHELL BUDGETED INCOME STATEMENT FOR JANUARY Assets Liabilities & Equity Sales. . .. Cost of goods $100 Cash Accounts 40 Accounts payable S 30 sold Gross profit Expenses . . . . Net income 60 40 25 15 receivable Inventory . Total 120 Owners' 50 eqity 180 $210 $210 Total