Question

Cash budget is prepared because it :

(A) is legally compulsory

(B) helps in preparing Balance sheet

(C) Helps in cash Management

(D) It is accounting requirement

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Answer 1

Answer:

C

Explanation:

The cash budget helps the management in proper planning. It will know in advance the possible cash surplus or deficit scenario in near future. In both cases, it can stay prepared in advance to avoid sudden crisis or loss of investment opportunity.

Answer 2

Option (c). A cash budget is prepared because it helps in cash   management.

Features of cash budget:

• cash budget is prepared in advance as it indicates the need for short-term borrowings.
• It shows all the monthly cash inflows and outflows. It sets out the cash receipts and payments expected by the business over a specific period of time.
• A cash budget helps the business to identify any shortage of cash in the upcoming time so that the management would be prepared to deal with it.
• The cash budget helps in the effective and efficient management of cash.
• It helps the business to establish a certain amount of cash that can help the company in case it encounters a high number of expenses and allows the company to extend credit to customers without having liquidity problems.