Question

How is a cash budget used to help manage current assets?

Short answer

The Cash budget provides a forecast of the cash flows and this helps in determining the build-up of each current asset and reduction of the same.

Step-by-step solution

Meaning of cash budget

The Cash budget is a budget that provides information regarding the expected outflows and inflows of cash in a particular period. This budget is helpful in determining the cash requirements and the cash that the company can generate.

The importance of cash budget in current assets management

The Cash budget helps in minimizing the current assets being held by a company. This helps in maintaining a schedule for determining the amount of inventory to be held and determining an appropriate schedule for receivables collection. This budget also helps in determining the time of build-up of each current asset and the reduction of the same.