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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Case 4-66 Cash Management

Hollis Corporation has the following budgeted schedule for expected cash receipts and cash disbursement.

Chapter 4, Problem 66.2C, Case 4-66 Cash Management Hollis Corporation has the following budgeted schedule for expected cash

Hollis begins July with a cash balance of $20,000, $15,000 of short-term debt, and no short-term investments. Hollis uses the following cash management policy:

  1. End-of-month cash should equal plus the excess of expected disbursements over receipts for the next month.
  2. If receipts are expected to exceed disbursements in the next month, the current month ending cash balance should be $20,000.
  3. Excess cash should be invested in short-term investments unless there is short-term debt, in which case excess cash should first be used to reduce the debt.
  4. Cash deficiencies are met first by selling short-term investments and second by incurring short-term debt.

Required:

Discuss the general considerations that help accountants develop a cash management policy.

To determine

Concept Introduction:

Budgets: Budgets are prepared to estimate the revenue, costs, receipts and payments for the business. There are several types of budgets prepared for a manufacturing concern. Few major types of budgets prepared by each manufacturing concert are as follows:

  • Sales budget
  • Cash Collection budget
  • Production budget
  • Raw material purchase budget
  • Expenses Budgets
  • Cash disbursement budget

To Discuss:

The general consideration for cash management policy in the given case.

Explanation

Cash budget is a budget which helps to estimate the cash inflows and cash outflows of the business during a specific period of time. It includes all the revenues, expenses paid as well as any loan taken and its payment. It includes all those transactions which are made in cash...

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