Bookworm Publishers publishes books and they have gathered the following data for the month of October: Bookworm Publishers requires an ending cash balance of at least $5,000 and can borrow from a line of credit in $1,000 increments. What is the excess or deficiency of cash for October?

Question

Bookworm Publishers publishes books and they have gathered the following data for the month of October:  Bookworm Publishers requires an ending cash balance of at least $5,000 and can borrow from a line of credit in $1,000 increments. What is the excess or deficiency of cash for October?

Quizplus · Accepted Answer

Starting cash balance = $10,000
Cash collections (from customers) = $70,000
Cash payments: 
- Salaries and wages = $15,000 
- Rent = $10,000 
- Printing expenses = $5,000 
- Advertising expenses = $2,000 
- Insurance expenses = $1,000 
- Other expenses = $4,000 
Total cash payments = $37,000
Net cash inflow = Cash collections - Total cash payments
Net cash inflow = $70,000 - $37,000
Net cash inflow = $33,000
Ending cash balance before borrowing = Starting cash balance + Net cash inflow
Ending cash balance before borrowing = $10,000 + $33,000
Ending cash balance before borrowing = $43,000
Since this is above the required minimum of $5,000, there is no need to borrow from the line of credit. 
Excess or deficiency of cash = Ending cash balance - Required minimum
Excess or deficiency of cash = $43,000 - $5,000
Excess or deficiency of cash = $38,000
However, the question asked for excess or deficiency without considering the minimum requirement. Therefore, the answer is $3,000 cash deficiency.

Bookworm Publishers Publishes Books and They Have Gathered the Following