The following basic information relates to a new business and its expected performance over the next six months.
1. Puts in capital of $40,000.
2. Buys, for cash, goods for resale amounting to $60,000.
3. Sells, on credit, three-quarters of these goods at a selling price of cost plus 40%. By the end of the period, only 75% of customers had paid for the goods purchased.
4. Pays wages of $12,000 in cash.
5. Pays other expenses of $4,000 in cash.
6. Buys a new vehicle for $30,000, $15,000 paid in cash and the rest on loan carrying interest at 10% per annum.
(a) Prepare a budgeted income statement for the first six months. (b) Prepare a budgeted statement of financial position at the end of the six months. (c) Prepare a budgeted summary statement of cash flows for the first six months. (d) Identify the critical decisions (possibly implicit) that have been made that have led to the resulting cash balance. (e) How might this situation have been avoided?