Pearson Advising will have cash receipts of $35,000 in April and cash

Pearson Advising will have cash receipts of $35,000 in April and cash disbursements of $30,000 for this month. If its beginning cash is $5,000 and its desired reserve is $2,000, what will its excess be for April?

A) There is no excess but a shortfall.
B) $5,000
C) $7,000
D) $8,000

ANSWER

Answer: D
Explanation: D) Its net cash flow for the month is cash receipts minus cash disbursements = $35,000 – $30,000 = $5,000. Its ending cash is net cash flow plus beginning cash = $5,000 + $5,000 = $10,000. Its excess is ending cash minus reserves = $10,000 – $2,000 = $8,000.