Question

GS Cookie Co. forecasts cash receipts for January and February of $18,000 and $20,000, with cash payments of $6,000 and $8,000, respectively. GS Cookie's cash balance at the beginning of January was $5,000, a level that it attempts to maintain. At the beginning of the year, GS Cookie has a $15,000 balance outstanding on its line of credit at the local bank. Based on its cash budget, how much of the line of credit can GS Cookie repay in January and February combined?

Answer 1

Answer:

It can pay 12,000 on January and the 3,00 left infebruary therefore; it will pay all his credit line within this two months.

Explanation:

                  January         February

beginning cash $  5,000   $    5,000

receipts            $18,000   $  20,000

disbursement    $(6,000)  $   (8,000)

subtotal            $17,000   $   17,000

minimun            $5,000   $    5,000

Financing  

beginning  $15,000    $ 3,000

payment/loan  $(12,000)  $(3,000)

ending             $  3,000          $-

Ending Cash:  $5,000            $14,000

Answer 2

The GS Cookie Co. can pay its line of credit in full in the months of January and February combined.

The above can be calculated by preparing an extract of Cash budget.

What is a cash budget?

Cash budget is a statement that is prepared to calculate the estimated cash receipts and payments for a specific period. Cash budget facilitates proper allocation of cash resources and avoid the chances of deficiency.

The extract of cash budget of GS Cookie Co. is given in the attachment.

The payment for line of credit can be made after deducting the minimum cash balance required.

The line of credit paid in January is $12,000 and the balance $3,000 can be paid in February.

Therefore the total payment for line of credit in the months of January and February is $15,000.

Learn more about cash budget here:

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