Answered: If the company reduces inventory…

If the company reduces inventory without affecting sales, what effect should this have on the company’s position in the terms of the cash budget and the balance sheet?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 21Q: A fellow student studying managerial accounting says. The net present value (NPV) weighs early...

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Concept explainers

Cash budget

A cash budget is an estimate of an organization's cash flow for the future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future. If cash receipts are insufficient to cover future expenses, an organization may plan to obtain funds from other sources. After estimating the sales, purchase, and capital expenditure budgets for the year, management develops a cash budget. These budgets are created to ensure that an organization's cash flow is managed. It is important to note that only cash transactions are recorded when actual cash enters and exits an organization.

Question

If the company reduces inventory without affecting sales, what effect should this have on the company’s position in the terms of the cash budget and the balance sheet?

Definition Definition Estimate of an organization's cash flow for a future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future.

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If management is being evaluated on their ability to manage a budget, what can they do to decrease cash outflow?
The percentage of accounts receivable that is uncollectible can be ignored for cash budgeting because a. no cash is received from an account that defaults. b. it is included in cash sales. c. it appears on the budgeted income statement. d. for most companies, it is not a material amount. e. None of these.
A fellow student studying managerial accounting says. The net present value (NPV) weighs early receipts of cash much more heavily than more distant receipts of cash. Do you agree or disagree? Why?
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Which statement about the cash budget is correct? It is also called the statement of cash flows. It can show managers when the company will experience a net loss. It can indicate when sales are insufficient. It can show managers when additional financing will be necessary.
Should a firm's cash budget relate back to its accounting profits? Do the two need to remain in sync?
Which of the following would be expected to result in a reduction in actual net profit compared to budgeted net profit in an accounting period? Please select all that apply. A decrease in the actual selling price of products compared to the budgeted selling price of products without a corresponding decrease in the actual costs of producing those goods. An increase in actual expenditure on non-current assets compared to budgeted expenditure on non-current assets. A more productive workforce than budgeted. An increase in the actual cost of raw materials compared to the budgeted cost of raw materials without a corresponding increase in the actual selling price of goods produced.
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Which of the following is true with respect to the sales budget? Group of answer choices It provides sales data to prepare the budgeted income statement. It captures the variable and fixed expenses of the business. It has no relation with the production budget. It provides sales data to prepare income statements for stockholders and creditors.
Which of the following expenses would not appear in the cash budget? a. Depreciation expense b. Marketing expense c. Interest expense d. Wages expense
How can an organization prevent budgetary slack in the budgeting process since the bonuses of managers are tied to the budget?
Generally speaking, budgets are not used to: assist in the control of profit and operations. facilitate communication and coordinate activities. evaluate performance. create a plan of action. identify a company's most profitable products.