The manager of Timmy's Timbers, the local landscape company, realizes that he runs a seasonal business. For example, although his sales do not start coming in until April and May, he needs to be well-stocked in March in anticipation of the spring sales. What should he create to help plan for when the firm will need to arrange for additional funds in order to avoid a cash crunch?
A) cash budget
B) pro forma income statement
C) pro forma balance sheet
D) set of leverage ratios

Question

Quizplus · Accepted Answer

A cash budget is a forecast of a company's inflows and outflows of cash over a certain period. By creating a cash budget, the manager will be able to identify when the company will need additional funds to meet its operational needs, such as buying inventory or paying employees. This will help him avoid a cash crunch and ensure that the business can operate smoothly throughout the year. The other options, such as a pro forma income statement, pro forma balance sheet, and set of leverage ratios, are useful for financial planning, but they do not provide the same level of detail regarding a company's cash position.

The Manager of Timmy's Timbers, the Local Landscape Company, Realizes