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 payments, and financing. The cash receipts section includes items that the company received payment for ranging from: collections from customers for work provided, sales from items sold, interest from bonds/investments, and dividends from investments. The cash payment section includes items that the company paid for ranging from: purchases of inventory or equipment, operational expenses, and dividend payments. The financing section includes items that pertains to the company's borrowing and repayment status, so items of those nature are usually applied in this final section. |

Why is a cash budget so vital to a company?

A cash budget is vital to a company as it helps forecasts the upcoming receipts and payments for a specific period of time. A company can use a cash budget to figure out where they stand cash wise to determine whether they have enough money to cover impending expenses/purchases or how much money will remain if they decide to pay out dividends. It just gives better insight to where the money will be coming and going in the upcoming periods.

What are the five basic principles of cash management that a company can follow in order to improve its chances of having adequate cash?

a. collect receivables as quickly as possible - receive cash as soon as possible, so it's not an outstanding item and you can use the money to pay off liabilities.
b. keep inventory levels as low as possible - inventory means additional costs, so it's better to have just enough to satisfy demand.
c. pay payables as late as possible - companies want to keep their money until the last possible moment as cash might be needed for other expenses/purchases
d. plan for major expenditures - companies should forecast and