The treasurer for Brookdale Clothing must decide how much money the company needs to borrow in July. The balance sheet for June 30, 2014 is presented below:

Brookdale Clothing Balance Sheet
June 30, 2014
Cash $75,000 Accounts payable $400,000
Marketable securities 100,000 Long-term debt 300,000
Accounts receivable 300,000 Common stock 100,000
Inventory 250,000 Retained earnings 200,000
Total current assets 725,000 Total liabilities and
Fixed assets 275,000 stockholder's equity $1,000,000
Total assets $1,000,000

The company expects sales of $250,000 for July. The company has observed that 25% of its sales is for cash and that the remaining 75% is collected in the following month. The company plans to purchase $400,000 of new clothing. Usually 40% of purchases is for cash and the remaining 60% of purchases is paid in the following month. Salaries are $100,000 per month, lease payments are $50,000 per month, and depreciation charges are $20,000 per month. The company plans to purchase a new building for $200,000 in July and sell its marketable securities for $100,000. If the company must maintain a minimum cash balance of $50,000, how much money must the company borrow in July?

Answer: Brookdale Clothing
Cash Budget for July 2014
Cash Inflows
Reduction in cash $25,000
Sale of marketable securities 100,000
Collection of accounts receivable 300,000
Cash sales (.25)($250,000) 62,500
Total cash inflows $487,500
Cash Outflows
Repayment of accounts payable $400,000
Cash purchases 160,000
Salaries 100,000
Lease payments 50,000
Purchase of building 200,000
Total cash outflows $910,000
Net inflow (outflows) ($422,500)
The company needs to borrow $422,500.