From the course: Foundations of Treasury Management
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Cash budget: Managing collections and disbursements
From the course: Foundations of Treasury Management
Cash budget: Managing collections and disbursements
- Cash budgeting is an important tool in treasury management. Budgeting is making a systematic quantitative plan on paper so we can see problems before they arise in the real world. Let's consider a simple example of a cash budget using forecasted cash collections and forecasted cash payments. It's the end of September, and Derrald Company has budgeted its cash receipts and cash payments for the next four months, and here are the numbers. At the end of September, Derrald has $54,000 cash in the bank and is just looking ahead to see what's going to happen in the next few months. It looks like October and November are going to be some lean months. Derrald is going to be paying out a lot more than he's going to be taking in. In December, he is forecasting finally getting balanced, as he expects to collect $40,000 and pay $40,000. And then in January, it looks like he will be collecting lots of cash, perhaps because of…
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