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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

Antivirus Inc. expects its sales next year to be \(2,500,000. Inventory and accounts receivable will increase \)480,000 to accommodate this sales level. The company has a steady profit margin of 15 percent with a 35 percent dividend payout. How much external financing will the firm have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing

In the management of cash and marketable securities, why should the primary concern be for safety and liquidity rather than maximization of profit?

Briefly discuss three types of lender control used in inventory financing.

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%

Postal Express has outlets throughout the world. It also keeps funds for transactions purposes in many foreign countries. Assume in 2010 it held 240,000 reals in Brazil worth 170,000 dollars. It drew 12 percent interest, but the Brazilian real declined 24 percent against the dollar.

a. What is the value of its holdings, based on U.S. dollars, at year-end? (Hint: Multiply $170,000 times 1.12 and then multiply the resulting value by 76 percent.)
See all solutions

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