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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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The percentage of accounts receivable that is uncollectible can be ignored for cash budgeting because

  1. a. no cash is received from an account that defaults.
  2. b. it is included in cash sales.
  3. c. it appears on the budgeted income statement.
  4. d. for most companies, it is not a material amount.
  5. e. None of these.

To determine

Identify the reason due to which, percentage of accounts receivable that is uncollectible can be ignored for cash budgeting.

Explanation

Cash Budget:

Cash budget is a financial budget. It is prepared to assess inflows and outflows of cash to manage cash balance and timing related issues. Closing cash balance is computed by adding cash receipts and subtracting cash payments from the expected cash available in the beginning.

a.

Cash budget includess cash inflows and outflows. Sales, for which cash is not receivable due to bad debt is therefore ignored while preparing cash budget. Therefore, this is the correct option.

b.

Uncollectible accounts receivable is a part of credit sales rather than cash sales. Therefore, this is not the correct option...

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