E9-16 The controller of Trenshaw Company wants to improve the company\'s control
ID: 2585102 • Letter: E
Question
E9-16 The controller of Trenshaw Company wants to improve the company's control sys- tem by preparing a month-by-month cash budget. The following information is for the month ending July 31, 2017. June 30, 2017, cash balance Dividends to be declared on July 15* Cash expenditures to be paid in July for operating expenses Amortization expense in July Cash collections to be received in July Merchandise purchases to be paid in cash in July Equipment to be purchased for cash in July *Dividends are payable 30 days after declaration to shareholders of record on the declaration date. $45,000 40,800 4,500 90,000 56,200 20,000 Trenshaw Company wants to keep a minimum cash balance of $25,000.Explanation / Answer
a.
Dividends will be paid in Aug.15 hence no cash outflow in july, Amortisation not causes cash outflow.
b.
Cash budgeting gives management control over the future outflows and inflows hence it can predict the future requirements and can bargain with banks and other institutions in advance, which can reduce the huge interest rates.
Cash coverage ratio can be maintained which is a requirement by borrowing from certain banks. This gives better credibility in taking loans.
Particulars Amount Opening balance 45,000 Cash collections 90,000 Cash available 1,35,000 Disbursements: Operating expenditure 40,800 Merchandise purchase 56,200 Equipment 20,000 Total disbursements 1,17,000 Preliminary balance 18,000 Loan to maintain minimum balance 7,000 Closing balance 25,000Related Questions
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