Question

Note: I need a step by step answer to the question with an explanation of your answer so that I can understand how to reproduce the steps.

Marsha Inc. has the following budgeted data for 2016:

Cash balance, beginning		$15,000
Collections from customers		145,000
Direct materials purchases		25,000
Expenses:
Operating expenses		50,000
Payroll		75,000
Income taxes		6,000
Other:
Machinery purchases		30,000

Operating expenses include $20,000 depreciation for buildings and equipment. All purchases of materials are paid for in the period of purchase. The company requires a minimum cash balance of $25,000.

Required: Compute the amount the company needs to finance or the excess cash available for Marsha to invest.

Answer 1

We can Summarize the solution into following Steps:-

1) Identify any Non Cash Expenses and Eliminate it for preparing Cash Budget.

2) Start with Cash Balance at the Beginning.

3) Add Cash Receipts. E.g. Collection from customers, Cash Sales, etc.

4) Deduct all the Cash Payments. E.g. Material Purchase Expenses,Payroll, etc.

5) Now you will have Cash balance at the Closing. If in the Question, the Minimum cash balance reuirement is given then you have to maintain it by financing Deficit Amount or Investing Excess Cash.

Note :- In the given question, we have deficit of $6000. Hence the company needs to arrange finance of $6000+$25000(Minimum Cash Balance) which comes to $31000.