Question

Lois Braggs owns a small restaurant in Boston. Ms. Bragg provided her accountant with the following summary information regarding expectations for the month of June. The balance in the cash account as of May 31 is $50,000. Budgeted sales for June are $310,000. Ms. Braggs is required to pay her suppliers on the last day of each month; cash payments for June are expected to be $350,000. Ms. Braggs has a line of credit that enables the restaurant to borrow funds on demand; however, they may only be borrowed on the last day of the month. In other words, she must borrow funds needed during June on May 31. Ms. Bragg desires to maintain a $20,000 cash balance in her account. Required: Compute the amount of funds Ms. Bragg needs to borrow for June.

Answer 1

Compute amount of funds Ms. B need to borrow for June on May 31, as follows: Particulars Beginning cash 1st June Add: Sales for June Available cash Less: Expected payment to suppliers Expected ending balance Less: Desired ending balance Borrowing needed on May 31st (Shortage) Amount (S) $50,000 $310,000 $360,000 $350,000 $10,000 $20,000 -$10,000 Therefore, amount of borrowing should be $10,000. Hence, if $10,000 borrowed on 31st May then beginning balance of cash would be $60,000 and ending balance of June would be as follows: Particulars Beginning cash 1st June Add: Sales for June Available cash Less: Expected payment to suppliers Expected ending balance Less: Desired ending balance Borrowing needed on May 31st Amount (S) $60,000 $310,000 $370,000 $350,000 $20,000 $20,000 $0