14.5 Cash Disbursements and the Cash Budget

Question 1

Which one of the following items would have to be included for a company preparing a schedule of cash receipts and disbursements for calendar Year 1?

A. A purchase order issued in December Year 1 for items to be delivered in February Year 2.
B. Dividends declared in November Year 1 to be paid in January Year 2 to shareholders of record as of December Year 1.
C. The amount of uncollectible customer accounts for Year 1.
D. The borrowing of funds from a bank on a note payable taken out in June Year 1 with an agreement to pay the principal and interest in June Year 2.

Answer 1

D. The borrowing of funds from a bank on a note payable taken out in June Year 1 with an agreement to pay the principal and interest in June Year 2.

Question 2

The cash budget is used to plan all of the following except

A. The firm’s dividend policy
B. Outside financing activity
C. The cash collection schedule
D. The investing of excess cash

Answer 2

C. The cash collection schedule

The cash budget combines the results of the operating budget with the cash collection and disbursement schedules to produce a comprehensive view of the sources and uses of cash. As such, the collection schedule is used to prepare the cash budget, but the cash budget is not used to plan the cash collection schedule.

Question 3

The cash budget must be prepared before completing the

Answer 3

A. Forecasted balance sheet
B. Production budget
C. Capital expenditure budget
D. Sales budget

Question 4

Which one of the following best represents a factor that should be considered for medium- and long-term cash forecasting?

A. Current monthly depreciation
B. Non-routine property sales
C. Pre-tax cost of capital projects
D. Impact of stock split

Answer 4

B. Non-routine property sales

Non-routine property sales could result in large fluctuations of cash and should be considered for medium- and long-term forecasting.