Part 2 of Case Study 3 in ACCT504

2. What are the three sections of a cash budget, and what is included in each section?

The three major sections of a cash budget are cash receipts, cash disbursement, and financing. A cash receipt includes cash collections from customers; sales to customers, collecting on credit sales, interest made, etc.
Cash disbursement is considered anything that is expected to be paid; administrative expenses, inventory purchases, taxes, etc.
Financing is the part of the cash budget that is needed in case of a cash deficiency. If a cash budget falls short, the company can borrow money to make up for that amount. Repayment of the financing then also includes the interest that needs to be paid on that amount, (Weygandt, Kieso & Kimmel, 2002).

3. Why is a cash budget so vital to a company?

A cash budget is a tool that can be used to manage a company’s cash. This budget will help a company stay focus by determining an appropriate budget, and help the company see if they can or cannot afford a new investment; or if and how much of financing may be needed.

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

The five principles are: Increase the speed of collection on receivables; which means that the company will be able to use those funds quicker.
Next, inventory levels should be kept low, which also keeps the cost of storage lower and prevents from overstocking.
Third, paying of liabilities should be used to the fullest in order to keep the money working as long as possible, but without causing damages to the company.
Next, major expenditures should be planned correctly, to take advantage of a good period in the company. I.e. a seasonal company should make those expenditures during the busiest period, when there is extra cash