Bacon Signs will have cash receipt of $80,000 in December and cash disbursements in December of $70,000. If its beginning cash is $4,000 and its desired reserve is $15,000, what will Bacon Signs' cash situation be at the end of December?
What will be an ideal response?
Answer: To know Bacon's cash situation we need to compute whether or not it will have excess cash or have a shortfall in cash. Net cash flow for the month is cash receipts minus cash disbursements = $80,000 - $70,000 = $10,000. Its ending cash is net cash flow plus beginning cash = $10,000 + $4,000 = $14,000. Its excess or shortfall is ending cash minus reserves = $14,000 - $15,000 = -$1,000. Thus, Bacon Signs' cash situation for the month is a shortfall of one thousand dollars.
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