Question

ABC Company requires a minimum cash balance of $15,000 at the end of each month and has identified the following information related to its cash budget for October: Beginning cash balance = $20,000; Cash receipts = $125,000; Cash disbursements = $135,000; Required short-term borrowing = $________. Ending cash balance = $_______.

Answer 1

To meet the minimum cash balance requirement, the company needs to borrow at least $25,000. The ending cash balance for October would be $10,000.

Step-by-step explanation:

To determine the required short-term borrowing and the ending cash balance, we need to calculate the net cash flow for the month of October. Net cash flow is calculated by subtracting cash disbursements from cash receipts. In this case, the net cash flow for October would be: $125,000 - $135,000 = -$10,000.

Since the ending cash balance should be at least $15,000, the company would need to borrow at least $10,000 + $15,000 = $25,000 to meet the minimum cash balance requirement. Therefore, the required short-term borrowing for October would be $25,000.

The ending cash balance can be calculated by adding the net cash flow to the beginning cash balance. In this case, the ending cash balance would be: $20,000 + (-$10,000) = $10,000.