Case Study 3 Accounting

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1. Use this information to prepare a Cash Budget for the months of August and September, using the template provided in Doc Sharing. Excel Spreadsheet 2. What are the three sections of a Cash Budget, and what is included in each section? The cash budget is separated into three sections: cash receipts, cash disbursements, and financing (Cenar, 2009). The first section, cash receipts, is exactly what the name implies, which is the cash expected to be received for goods or services rendered by the company. Because it is driven mostly by sales, cash is not just the physical dollar amounts being received by the company but also includes interest and dividends as well as planned sales of assets like stock or inventory or plant sales…show more content…
This budget can assist the company in determining when more cash resources are needed, and if excess cash is available for future investing or saving (Parry, 2006). The company can plan accordingly over a period of time if a cash budget is created and utilized efficiently. Without a cash budget, the company will flounder in times of economic stress, and have excess cash wasting interest by lying about. It is a plan, and just like any other plan like marketing or sales plans, it is best used before a crisis or challenge occurs. 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 basic principles of cash management are the following: (1) reduce receivable or average collection period, (2) manage inventory levels, (3) increase average payment period, (4) plan major expenses, and (5) invest excess or idle cash (Reider, 2005). First, the company needs to reduce how long it takes for the money paid by customers to be received by the company. The quicker the money is collected, then the faster the money can then be turned around and used elsewhere like paying expenses or investing. Second, the company has to keep a close eye on inventory controls. It means finding a balance of just the right amount of inventory because having too much carries more overhead expenses, yet not having enough would hamper the ability to quickly fill orders (Reider, 2005).

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