Question

A company is preparing its cash budget. Its cash balance on January 1 is $290,000, and it has a minimum cash requirement of $340,000. The following data have been provided:

January February March
Cash receipts $1,061,200 $1,182,400 $1,091,700
Cash payments 984,500 1,210,000 1,075,000
The amount of cash excess or deficiency (after considering the minimum cash balance required) for March is a(n)
a. deficiency of $60,000
b. excess of $214,200
c. excess of $25,300
d. excess of $15,800

Answer 1

The correct answer is:

excess of $15,800 (d.)

Step-by-step explanation:

In order to calculate the cash excess or deficiency for March, we have to determine the net balance for the period from January, February and March, after deducting the total expenditures from the incomes as follows:

Cash Receipts (income)

January 1 balance = $ 290,000

January = $ 1,061,200

February = $ 1,182,400

March = $ 1,091,700

Total cash receipt = $3,625,300

Cash payments (expenditure)

January = $ 984,500

February = $ 1,210,000

March = $ 1,075,000

Total payments = $ 3,269,500

Net cash available = total cash receipts - total cash payments

= 3,625,300 - 3,269,500 = $355,800

Note, we are told that the minimum cash requirement = $340,000

Therefore:

Cash excess (deficiency) = Net cash available - minimum cash requirement

= 355,800 - 340,000 = $15,800 (excess)

excess because cash available is greater than the minimum cash requirement.