Laurey Inc. is working on its cash budget for May. The budgeted beginning cash balance is $45,000. Budgeted cash receipts total $129,000 and budgeted cash disbursements total $124,000. The desired ending cash balance is $60,000. To attain its desired ending cash balance for May, the company needs to borrow:
A)$110,000
B)$0
C)$60,000
D)$10,000

Question

Quizplus · Accepted Answer

To calculate the amount the company needs to borrow, we need to use the following formula:

Beginning cash balance + Cash receipts - Cash disbursements = Ending cash balance

Plugging in the given numbers, we get:

$45,000 + $129,000 - $124,000 = $50,000

This means that if the company does not take any action, it will have $50,000 at the end of May, which is $10,000 short of its desired ending cash balance of $60,000. Therefore, the company would need to borrow $10,000 to meet its cash flow needs.

Hence, choice D is the correct answer.