Requirements: 1. Use this information to prepare a cash budget for the months of

Question

Requirements:

1. Use this information to prepare a cash budget for the months of May and June, using the template provided in Doc Sharing.

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

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

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?

Please use the template that I provided to assist me with these problem.

CASE STUDY 3%u2014Cash Budget Template SCHEDULE   OF EXPECTED CASH COLLECTIONS FROM CUSTOMERS Credit Sales May June April May June Total   Cash Collections               -                  -    SCHEDULE   FOR EXPECTED PAYMENTS FOR PURCHASE OF INVENTORY Inventory   purchases May June April May June Total   Payments for Inventory Purchases               -                  -    LBJ Company Cash Budget For the Two Months of May and June May June Cash balance Add:   Receipts   Collections from customers 0 0   Sale of plant assets   Sale of new common stock   Cash sales Total receipts 0 0 Total   Available Cash 0 0 Less:   Disbursements   Purchases of inventory 0 0   Operating expenses   Selling and administrative expenses   Equipment purchase   Dividends Total   disbursements               -                  -    Excess   (deficiency of available cash over disbursements)               -                  -    Financing    Borrowings    Repayments Ending   cash balance $0               -    Please   answer the three qualitative questions on the next tab called Qualitative   Questions.

Explanation / Answer

2) The cash budget contains the following three sections:

The 5 basic principles of cash management include: 1- Increase the speed of receivables collection; by lowering the average collection period for funds, you will have more money to use for operations or investing. Offering a discount for early payment is one method that can be used to speed up the payment process. 2- Keep inventory levels low; maintaining the proper levels of inventory are crucial to maintaining your available cash levels. The cost of inventory and warehousing it is a huge expense; this is why right-on-time is a good way to go if it is feasible for your company. It is also important to consider the shelf life and the depreciation of your products. Most foods have a short shelf life, and items such as computers and computer related items have a fast depreciation rate. 3- Monitor the timing of payment of liabilities; you should take advantage of the full payment period, but do not pay them late, this could damage your credit rating. 4- Plan timing of major expenditures; you should plan the timing of major expenditures; they should be made when you normally have excess cash which is typically during the slow season. 5- Invest idle cash; leaving cash in your safe will earn you nothing. Letting large amounts of cash just sit without reinvesting it is not good money management.

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