Asked by Erika Arrona on Jul 08, 2024
Verified
Bustillo Inc.is working on its cash budget for March.The budgeted beginning cash balance is $35,000.Budgeted cash receipts total $142,000 and budgeted cash disbursements total $151,000.The desired ending cash balance is $30,000.To attain its desired ending cash balance for March, the company needs to borrow:
A) $0
B) $4,000
C) $56,000
D) $30,000
Cash Budget
An estimation of the cash inflows and outflows for a business or individual for a specific period, highlighting the anticipated cash position.
Cash Receipts
The money a company receives from its various business activities, typically including sales, services, loans, or any transactions that bring cash into the organization.
Cash Disbursements
The process of paying out cash for various purposes, which could include expenses, investments, or dividends.
- Comprehend the process of cash budgeting, encompassing the necessity for a minimum cash balance and the requirements for financing.
Verified Answer
Beginning Cash Balance + Cash Receipts - Cash Disbursements = Ending Cash Balance
$35,000 + $142,000 - $151,000 = $26,000
The formula shows that the company will have a deficit of $6,000 ($26,000 - $30,000), which means it needs to borrow $6,000 to attain its desired ending cash balance of $30,000.
However, the question is asking how much the company needs to borrow to attain the desired ending cash balance "for March." Since the calculation above shows that the company will have a deficit of $6,000, it means it needs to borrow $6,000. However, since the question is asking how much the company needs to borrow, the answer is the difference between the desired ending cash balance and the budgeted ending cash balance, which is $4,000 ($30,000 - $26,000). Therefore, the best choice is B.
Learning Objectives
- Comprehend the process of cash budgeting, encompassing the necessity for a minimum cash balance and the requirements for financing.
Related questions
The Expected Cash Collections for May Is Closest To
Which of the Following Would Not Be Used in Preparing ...
Justin Company's Budget Includes the Following Credit Sales for the ...
A Plan That Shows the Expected Cash Inflows and Cash ...
Use the Following Data to Determine the Company's Cash Payments ...