Acct 505 Week 6 Case Study 3

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1) What are the three sections of a Cash Budget, and what is included in each section? The three sections of a Cash Budget are; Cash receipts, Cash disbursements, and Financing. A cash budget allows you to estimate and track all of the money that comes into and leaves your business. Cash Receipts are any monies your business takes in, such as sales receipts. Cash disbursements show where you must spend some of your money, such as on employee pay, raw materials purchases, and manufacturing overhead costs Financing shows expected payments and the repayments of the borrowed funds plus interest. (Kimmel, 2009, p. 353). If there is a cash deficiency during any period, the company will need to borrow funds. If there is cash excess during any budgeted period, funds borrowed in previous periods can be repaid or the excess funds can be invested. 2) Why is a Cash Budget so vital to a company? A cash budget allows a company to establish the amount of credit that it can extend to customers without having problems with liquidity. It also helps you to avoid having a shortage of cash when you have numerous expenses. If you cannot pay your expenses this means you have a cash shortage. Without setting a cash budget for example, spending five dollars a day on lunch seems fairly reasonable. However, upon setting a cash budget to account for regular annual cash expenditures, this seemingly small daily expenditure comes out to $100 a month which may be better spent on other things. 3) What are the five basic principles of cash management that a company can follow in order to improve its chances of having adequate cash? 1- Increase the speed of receivables collection; by lowering the average collection period for funds, you will have more money to use for operations or investing. 2- Keep inventory levels low; maintaining the proper levels of

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