From the course: Accounting Foundations
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Budgets: Solving problems in advance
From the course: Accounting Foundations
Budgets: Solving problems in advance
- All right, let's go back to the beginning. It's the end of September and we're doing a cash budget for the next four months. We computed that the budgeted amount of cash at the end of October was $14,000. So we'll start November with $14,000. We expect to collect another $10,000 in November, which will give us $24,000. We expect to spend $60,000 in November. So it looks like we're going to come up short about $36,000 in November. We're going to have to borrow $36,000 in November just to have enough cash to cover all of our forecasted payments. That is our budget, and we made that budget in advance at the end of September. Now, November comes along. Let's say that it's the middle of November and we see that we need $36,000. Well, there are two ways to live life, business life and life in general. One way is to carefully plan out a budget like we've got here. If we've got a careful budget, we already knew that we needed to borrow $36,000 in November. Okay, fine, we expected that…