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 has been provided: What is the amount of cash excess or deficiency (after considering the minimum cash balance required) for February?

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 has been provided:  What is the amount of cash excess or deficiency (after considering the minimum cash balance required) for February?

Quizplus · Accepted Answer

To calculate the cash excess or deficiency for February, we need to calculate the total cash inflows and outflows for the month and then subtract the minimum cash requirement.

Cash inflows:
- Sales: $520,000
- Borrowing: $120,000
Total cash inflows: $640,000

Cash outflows:
- Rent: $40,000
- Salaries and wages: $240,000
- Supplies: $80,000
- Utilities: $20,000
- Taxes: $10,000
- Equipment purchase: $120,000
Total cash outflows: $510,000

Net cash inflow/outflow: $640,000 - $510,000 = $130,000

Minimum cash requirement: $340,000

Cash excess/deficiency: $130,000 - $340,000 = -$210,000

Since the cash balance is below the minimum cash requirement, there is a cash deficiency. The answer is C, deficiency of $900 after rounding.

A Company Is Preparing Its Cash Budget