Expert Q&A; Done (15 points) wants to improve the company\'s control systm cash

Question

Expert Q&A; Done (15 points) wants to improve the company's control systm cash budget. The following infoemation is for the month ending July 31, 2017 June 30, 2017 cash balance $55,000 Dividends to be declared on July 15* 12.000 Cash expenditures to be paid in July for operating expenses 36,800 Amortization expense in July 4,500 Cash collections to be received in July 90,000 Merchandise purchases to be paid in cash in July 71,300 Equipment to be purchased for cash in July 20,500 Dividends are payable 30 days after declaration to sharcholders of record on the declaration date Adams Company wants to keep a minimum cash balance of $30,000. (a) Prepare a cash budget for the month ended July 31,2017, and indicate how much money if any, Adams Company will need to borrow to meet its minimum cash requirement. b) Explain how cash budgeting can reduce the cost of short-term borrowing.

Explanation / Answer

Part 1 - Cash Budget

(a) Amortisation are non cash expenses

(b) Dividend will be paid in august

Closing Cash Balance

Part 2 - Cash budgets are prepared on the analysis of cash flow. Cash budgets are the best estimated of the liquidity of any entity.

Cash budgets are prepared to know the requirement of cash in near month in advance.

Hence, instead of borrowing at high interest rate without preparing casg budgets, Organisation prepare cash budgets to further analyse the cash flow and able to borrow the 'Optimum amount' of short term borrowing resulting into lower interest cost and calculated liability.

Particulars Amount Opening Balance (A) $55000 Receipts Cash Collection (B) $90000 Expenses Paid Operating expenses $36800 Merchandise Purchase $71300 Equipment Purchase $20500 Total Cash Expenses (C) $128600 Cash Budget (A + B - C) $16400

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.