Question

TRUE OR FALSE:

generally firms that have cash flows with high seasonal cash flows or cash flows that are just generally harder to forecast prepare cash budgets more frequently compared to firms with cash flows that are less seasonal and/ or more predictable?

Answer 1

A cash budget details a company's cash inflow and outflow during a specified budget period, such as a month, quarter or year. Its primary purpose is to provide the status of the company’s cash position at any point of time. This helps the company make critical decisions such as creating cash reserves to make arrangements for projected shortages and using excess funds prudently. Additionally, the cash budget helps in prioritizing payments in the budget period. It also helps in analyzing budget-versus-actual variances in cash inflow and outflow.

Under seasonal businesses, as the cashflows are undeterminable and unpredictable, frequent review of cash budgets can help in taking various discions. It helps in taking various corrective actions. Incase a receipt was expected and that would have forecasted against payment of debt obligation. If during the seasonal month the receipt does not come company needs to evaluate an alternative source of funds. Under seasonal business such corrections needs to made more often then normal business.

Hence given statement may be considered as true.