Question

Budgeting question. What does it mean when it says "all borrowings and repayments should be made in increments of $500"

Answer 1

'All borrowing and repayment should be made in increments of $500'

The given statement is related to the preparation of cash budget.

It means if there is shortage of cash i.e. when estimated cash payments are more than estimated cash receipts, borrowing will be in multiples of $500.

For example, estimated cash receipts are $4,100, estimated cash payments are $4,400.

There is a shortage of cash by $300 but borrowing will be $500. And suppose estimated cash payment are 4,600 and estimated cash receipts are $3,500, there is a shortage of $1,100 but borrowing should be $1,500 (in multiple of $500, 500 x 3) .

In the same manner, if there is cash surplus in any period, repayments should be in multiple of $500 only.

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