The desired minimum monthly balance
Coronado Company management wants to maintain a minimum monthly cash balance of $29,500. At the beginning of April, the cash balance is $29,500, expected cash receipts for April are $289,100, and cash disbursements are expected to be $300,900. How much cash, if any, must be borrowed to maintain the desired minimum monthly balance?
Sample Solution
To maintain the desired minimum monthly balance of $29,500, Coronado Company must borrow $12,500. This is calculated as follows:
To maintain the desired minimum monthly balance of $29,500, Coronado Company must borrow $12,500. This is calculated as follows:
Beginning cash balance = $29,500
Expected cash receipts for April = $289,100
Expected cash disbursements for April = 300,900
Net decrease in cash balance = ($11,800)
Desired minimum monthly balance = $29,500
Amount to be borrowed to maintain desired minimum monthly balance= Desired Monthly Balance - Net Decrease in Cash Balance
= 29,500 - (11,800)
=$12,500
Therefore Coronado Company must borrow $12,500 to maintain the desired minimum monthly balance of $29.5K.