Question

19. Big Company is preparing a cash budget for the month of April. The following information is available: Cash Balance, March 31, 2020 $11,000 Cash collections from customers in April 43,000 Cash paid for land in April 10,000 Patent amortization expense in April 5,000 Cash paid for merchandise in April 20,000 Cash paid for operating expenses in April 20,000 Cash dividend paid in April 5,000 The minimum cash balance desired is $10,000. What is the deficiency of cash before financing at April 30, 2020

Answer 1

Cash Deficiency = - $11000

Step-by-step explanation:

To calculate the deficiency of cash at the end of April, we must first calculate the Cash receipts for the month of April and add them to the available cash balance at start of the month and then deduct the cash payments for the month. In this way we can calculate the ending balance for April. Later we can calculate the cash deficiency at the end of April by comparing the actual cash balance at the end of April with the desired cash balance,

Ending Balance = Opening Cash Balance + Cash Receipts - Cash Payments

Ending Balance - April= 11000 + 43000 - [10000 + 20000 + 20000 + 5000]

Ending Balance = - $1000

The Cash Deficiency before finance is,

Cash Deficiency = Actual Balance - Desired Balance

Cash Deficiency = -1000 - 10000

Cash Deficiency = - $11000

It is important to remember that when calculating the ending cash balance, we will not consider Patent amortization expense as it is a non cash expense.