The controller of Trenshaw Company wants to improve the company's control system by preparing a month-by-month cash budget. The following information is for the month ending July 31, 2017.
June 30, 2017, cash balance...................................................$45,000
Dividends to be declared on July 151.........................................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, 2017, 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.
Prepare schedules of expected collections and payments.