How cash budgeting can reduce cost of short-term borrowing

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Reference no: EM13888172

The controller of Trenshaw Company wants to improve the company's control sys- tem by preparing a month-by-month cash budget. The following information is for the month ending July 31, 2014.

June 30, 2014, cash balance

$45,000

Dividends to be declared on July 15*

12,000

Cash expenditures to be paid in July for operating expenses

40,800

Amortization expense in July

4,500

Cash collections to be received in July

90,000

Merchandise purchases to be paid in cash in July

56,200

Equipment to be purchased for cash in July

20,000

*Dividends are payable 30 days after declaration to shareholders of record on the declaration date.

Trenshaw Company wants to keep a minimum cash balance of $25,000.

Instructions

(a) Prepare a cash budget for the month ended July 31, 2014, and indicate how much money, if any, Trenshaw Company will need to borrow to meet its minimum cash requirement.

(b) Explain how cash budgeting can reduce the cost of short-term borrowing.

Reference no: EM13888172

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