Prepare a formal memo addressed to your instructor In the memo address the follo
ID: 2524130 • Letter: P
Question
Prepare a formal memo addressed to your instructor In the memo address the following issues for a sample company 1. The ending cash balance at the end of March is significantly greater than the cash balance at the end of February. Identify the material causes of that difference. 2 Describe the relationship of the Cash Budget to the Sales Budget 3. Describe the role that Depreciation plays in the Cash Budget 4. Management requires a c tie end f eah a00at tf end of each month Poride fie reasotas managencat requires a designated calh bat at the end of each monthExplanation / Answer
To: The Instructor
From:____________________Designation__________
Reasons of the increase:
There are more other reasons also for increasing the cash balance in the month of March in comparison of February, but these 3 points of material causes of the differences
2. Relationship of Cash Budget to the Sales Budget
While preparing Sales budget a business uses its cash budget for scheduling the receipt from sales collection. A business sometimes collects cash for the sale in the period after sales occurs. This delay in collecting cash causes a company’s projected cash receipts to the differ from the projected sales on its sales budget. For example, any small business might be $200000 in sales in any quarter, but might expect only $150000 in cash receipt. Therefore, sales budget & Cash budget prepared simultaneously.
3. Depreciation role in Cash Budget
Depreciation is a non-cash item, since it is simply an ongoing charges to the carrying amount of any fixed assets, design to gradually reduce the recorded cost of assets over its useful life. When preparing Cash Budget depreciation is listed as a reduction from expense, thereby implying that it has no impact on cash flows. However, depreciation does have an indirect impact on cash flow.
Depreciation is an allowable expense as per Income tax Act, hence it reduces the income of a firm, due to which the firm has to pay less amount of tax liability. Thus depreciation reduces the tax liability of a firm, hence affect the cash flow.
4. Five reasons for requiring designated cash balances for each month
There are the reasons behind requiring designated cash balances for each month i.e.