Northern Company is preparing a cash budget for June. The company has $12,000 cash at the beginning of June and anticipates $30,000 in cash receipts and $34,500 in cash disbursements during June. Northern Company has an agreement with its bank to maintain a cash balance of at least $10,000. As of May 31, the company owes $15,000 to the bank. To maintain the $10,000 required balance, during June the company must:

Question

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To maintain the $10,000 required balance, Northern Company must have at least $22,000 ($10,000 required balance + $12,000 beginning cash balance) available at the beginning of June. However, the company only expects to have $30,000 in cash receipts during June. Therefore, the company must borrow an additional $2,500 ($22,000 - $19,500 expected cash balance) to maintain the required cash balance of $10,000.

Northern Company Is Preparing a Cash Budget for June