Paper Example on Preparation and Use of Cash Budget

Paper Type:  Essay
Pages:  4
Wordcount:  948 Words
Date:  2022-06-19


Cash budget is identified as an outflow and an inflow of cash estimate that the management prepares in a business for a given time period. It plays a significant role in helping the management in credit control and assists in determining whether the available fund is in place to fund some of the extended operations. On the other hand, management of current liabilities and current assets in the short run can lead to several problems for the financial manager. For effective current asset management and the general management of an organization, it is important to ensure that marketable securities, inventory, cash, and account receivable are effectively managed. In this case, a general analysis will be done on how marketable securities, cash, inventory, account receivable, inventory and marketable securities and what it entails in managing every area.

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Current Assets

Technically, the general manager of a company's current assets actually starts with cash management. For an organization to continually manage its operation, cash offers the liquidity that is needed to every organizational responsibility, owed to suppliers and creditors and flexibility of taking advantage of some of the new opportunities that do arise. For most of the firms, managing cash is one of the great challenges that many firms are facing.


Cash is identified as the significant components that facilitate the general management of daily operation yet it is identified as a nonearning asset. In business dollars that are tied up through cash could be earning greater interest rate in return. for a large corporation to run effectively, they tend to spend considerable resources and time in cash management and in most cases, the dollar is transferred forth and back between marketable securities and cash accounts which has the capacity of earning higher return rate (Tonguet-Papucci, & Kolsteren,2017). It is also important to note that negotiated credit lines are serving to supplement some of the cash that has been depleted during shortage periods.

Marketable securities

In the general operation, marketable securities are debt or securities that are redeemed or even sold within a provided year. They form significant financial instruments that have great chances of being converted to cash, for example, the common stock, government bonds, and the overall listing, they form part of the long-term and short-term, depending on the maturity date.

Accounts receivable

One significant issue is the general management of accounts receivable where receivable is recognized as money owed to a company but the collection process has not yet taken place. This is one of the significant investment for a company since dollars that have not been received has no possibility of earning a positive return. To properly facilitate the general management of account receivable the implementation and the determination of a company's credit policy such as cash discount, cash receivable, how long customers are allowed to pay for services and merchandise received. For management to operate efficiently, it is important to take a keen measure on credit policy and liberal credit terms. In most cases, tight credit policy may end up building a missed sales opportunity. On the other hand, liberal credit terms may end up with greater uncollected accounts and average collection periods.


Considering the overall performance of a company, current asset management involves the overall inventory management. This includes receivable. Technically, inventory is a representation of an investment in resources by a company that is almost in the stage of paying off. For efficiency in performance, an adequate level of inventory levels is supposed to be in place and its necessary to ensure the overall level of production is not messed up with. This is to ensure that unexpected sales demand is met and to facilitated uninterrupted production. On contrary, too much inventory to a given level is an indication that dollars are tied up in most of the non- earning assets that could be used to make more profit for the company (DeFranco & Schmidgall,2017). To ensure efficiency, managers are supposed to make decisions on whether to maintain the level of production regardless of the current demand or whether to attempt to coordinate production with sales pattern.

Working capital involves the controlling and the financing of the firm's current assets. With the current asset forming part of marketable securities, cash, inventory, and account receivable. On the other hand, the company's ability to effectively manage the associated liability and current assets may determine how effective it will function and even survive in the short run.

Cash budget

Bringing together the management of current liabilities and current assets do result in bringing together a cash budget. A company is a manageable cash budget prevent the general shortages and cash shortages that in the long run result in a serious financial challenge. A good manager is supposed to work on managing and generally monitoring the company 's conversion cycle. The conversion cycle consists of the receivable collection period, payable deferral period and the collection period. The main purpose of achieving effective cash management is to minimize the receivable collection period, inventory conversion period and the payable deferral period. When a company's cash is managed successfully, managers, liabilities and the current asset can end up keeping a cash conversion cycle that offers the firm with liabilities and liquidity.


DeFranco, A. L., & Schmidgall, R. S. (2017). Cash Budgets, Controls, and Management in Clubs. The Journal of Hospitality Financial Management, 25(2), 112-122.

Tonguet-Papucci, A., Houngbe, F., Lompo, P., Yameogo, W. M. E., Huneau, J. F., Aissa, M. A., & Kolsteren, P. (2017). Beneficiaries' perceptions and reported use of unconditional cash transfers intended to prevent acute malnutrition in children in poor rural communities in Burkina Faso: qualitative results from the MAM'Out randomized controlled trial. BMC public health, 17(1), 527.

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Paper Example on Preparation and Use of Cash Budget. (2022, Jun 19). Retrieved from

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