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Chapter 3: 4DQ (page 182)

How is a cash budget used to help manage current assets?

Short Answer

Expert verified

Cash budget provides a forecast of the cash flows and this helps in determining the build-up of each current asset and reduction of the same.

Step by step solution

01

Meaning of cash budget

Cash budget is a budget that provides information regarding expected outflows and inflows of cash in a particular period. This budget is helpful in determining the cash requirements and the cash that the company can generate.

02

The importance of cash budget in current assets management

Cash budget helps in minimizing the current assets being held by a company. This helps in maintaining a schedule for determining the amount of inventory to be held and determining an appropriate schedule for receivables collection. This budget also helps in determining the time of build-up of each current asset, and reduction ofthe same.

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Most popular questions from this chapter

Discuss the relative volatility of short- and long-term interest rates

A firm that uses short-term financing methods for a portion of permanent current assets is assuming more risk but expects higher returns than a firm with a normal financing plan. Explain.

What does the EOQ formula tell us? What assumption is made about the usage rate for inventory?

What does LIBOR mean? Is LIBOR normally higher or lower than the U.S. prime interest rate?

Route Canal Shipping Company has the following schedule for aging of accounts receivable:

a. Fill in column (4) for each month.

Age of receivables April 30 20X1

1

2

3

4

Month of sales

Age of accounts

Amounts

Percent of amount due

April

0-30

\(131,250

____

March

31-60

\)93,750

____

February

61-90

\(112,500

____

January

91-120

\)37,500

____

Total receivables

$375,000

100%
See all solutions

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