The controller of Trenshaw Company wants to improve the company’s control system by preparing a month-by-month The following information is for the month ending July 31, 2020.
June 30, 2020, 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 for the month ended July 31, 2020, 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.
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