Question

Explain how the collections and purchases schedules are related to the borrowing needs of the corporation.

Short answer

The collection and the purchases schedules represent the period in which receivables are collected. When the collections of the organization are unable to cover the financial requirement of the organization, the managers need to look to boorow the funds to cover the deficiency.

Step-by-step solution

Borrowing

Borrowing is defined as the situation in which a person or the company in need of money approach the bank or other financial institution to obtain some form of loan on interest to fulfil their financial needs.

Collection and purchase schedule

A collection and purchase schedule is prepared by an organization to measure the speed at which the cash can be collected by an organization from its debtors. Management should refer to these schedules to identify the availability of the funds and decide the amount of borrowing.