A company is preparing its cash budget for the first quarter of the year.It has $8,000 in cash at the beginning of the period.Cash sales for the quarter are budgeted at $180,000.Selling and administrative expenses are budgeted at $58,000, which includes $12,000 depreciation.Cash expenses are paid in the month incurred.Cash payment for inventory purchases are budgeted at $135,000.The desired cash balance on March 31 is $10,000.How much financing will the company need during the quarter?
A)$0
B)$3,000
C)$5,000
D)$7,000

Question

Quizplus · Accepted Answer

To calculate the financing needed, start with the beginning cash balance, add cash sales, subtract cash expenses (excluding depreciation since it's not a cash expense), and compare the result to the desired ending cash balance. Beginning cash is $8,000, cash sales are $180,000, cash expenses for selling and administrative are $46,000 ($58,000 - $12,000 for depreciation), and cash payments for inventory are $135,000. The total cash outflow is $181,000 ($46,000 + $135,000), and the total inflow is $188,000 ($8,000 + $180,000). The net inflow before financing is $7,000 ($188,000 - $181,000), which is $3,000 short of the desired ending balance of $10,000. Therefore, the company needs $3,000 in financing.

A Company Is Preparing Its Cash Budget for the First