Striker Company estimates its expected cash receipts for the period to be $80,000 and its expected cash disbursements to be $70,000. The beginning cash balance for the period was $5,000. The management wants to maintain a minimum cash balance of $40,000. Knowledge Check 01 How much cash will the company need to borrow?

a. $15,000

b. $25,000

c. $30,000

d. $40,000

The correct option is B, $25000

Explanation:

The amount that needs to be borrowed is the cash shortfall which is the difference between cash balance calculated considering the present opening cash balance, the cash receipt and disbursement and the budgeted cash balance of $40000

The cash balance now is opening cash balance plus expected  cash receipt less expected cash disbursement

Opening cash balance     $5000

Cash receipt                      $80000

cash disbursement           ($70,000)

Cash balance                    $15,000

Budgeted cash balance    $40,000

actual cash balance          ($15,000)

borrowing                           $25,000

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