Zinc Corporation is developing its cash budget for this month. Each month, the firm manufactures and sells $15,000 of products, and it pays $10,000 for wages, taxes, cost of goods sold, and other operating expenses. Zinc has nothing in its checking account even though its target cash balance is $8,000. What amount will Zinc show on the "bottom line" of its cash budget for this month? That is, what will be Zinc's cash position?

Question

Quizplus · Accepted Answer

To calculate Zinc's cash position, we must subtract its total cash outflows from its total cash inflows:

Total cash inflows = $15,000 in sales

Total cash outflows = $10,000 in wages, taxes, COGS, and other expenses

Zinc's net cash inflow for the month is $5,000 ($15,000 - $10,000). However, Zinc has nothing in its checking account even though its target cash balance is $8,000. Therefore, Zinc has a cash shortfall of $3,000.

Zinc Corporation Is Developing Its Cash Budget for This Month