In company XYZ, assume that level production happens throughout the year and that receivables are collected in two equal installments over a two-month period subsequent to the sales period. If XYZ wants to develop a cash budget, which of the following steps is required?
A) Calculate ending accounts receivable balances.
B) Calculate cost of goods sold.
C) Estimate monthly net cash flow and bank borrowing or repayments.
D) Calculate ending inventory.

Question

Quizplus · Accepted Answer

To develop a cash budget, it is necessary to estimate monthly net cash flow and bank borrowing or repayments. This will help the company determine its cash inflows and outflows, as well as any potential need for financing. Calculating ending accounts receivable balances and ending inventory may be useful for other financial planning purposes, but they are not necessary for developing a cash budget. Similarly, calculating cost of goods sold may be useful for determining the company's profitability, but it is not directly relevant to cash flow management.

In Company XYZ, Assume That Level Production Happens Throughout the Year