Bravo Co. collects sales over 3 months: 30% in month of sale, 50% the following month, 20% the second month.Which risk is most directly managed by preparing a cash budget?

Question

BlackTom AI · Accepted Answer

A cash budget primarily addresses the timing of when cash is actually received and spent, so it directly manages differences between sales (revenue recognition) and cash collections.

1. Relevant knowledge points and concepts
- Cash budget: a forward-looking schedule of expected cash inflows and outflows used to ensure liquidity, plan borrowing/repayments, and avoid shortfalls.
- Accrual vs. cash accounting: sales can be recorded when made, but cash may be collected later; this timing mismatch affects cash flow.
- Collections pattern: the given collection schedule (30% in month of sale, 50% next month, 20% second month) defines the timing of cash inflows from sales.

2. Complete reasoning process step by step
- Determine how much cash will be received in each future period from current and prior sales using the given percentages.
- Compare expected cash inflows to anticipated cash outflows (payroll, suppliers, interest, etc.) to identify periods with potential shortfalls or surpluses.
- Use the budget to plan borrowing, investments, or operational adjustments to smooth liquidity.

3. Calculations (intermediate steps)
Example: suppose sales in Month 1 = $100,000, Month 2 = $120,000.
- Month 1 collections from Month 1 sales: 30% × $100,000 = $30,000.
- Month 2 collections: from Month 1 sales = 50% × $100,000 = $50,000; from Month 2 sales = 30% × $120,000 = $36,000. Total Month 2 collections = $86,000.
- Month 3 collections: from Month 1 sales = 20% × $100,000 = $20,000; from Month 2 sales = 50% × $120,000 = $60,000; plus 30% of Month 3 sales, etc.
These step-by-step receipts show how cash budget maps timing of collections.

4. Why the correct answer is correct
The cash budget’s core function is to manage liquidity by aligning cash inflows (which in this scenario are spread over three months) with outflows. Preparing it directly addresses timing differences between when sales occur and when cash is actually collected.

5. Why the other options are incorrect
- Inventory obsolescence: managed by inventory control, turnover analysis, not primarily a cash budget.
- Tax compliance: handled by tax accounting and regulatory processes, not the main purpose of a cash budget.
- Exchange rate fluctuations: managed by hedging and treasury/FX strategies, not directly resolved by a cash budget.

6. Conclusion
Therefore, the most directly managed risk is "Timing differences between sales and cash collections," which matches the provided correct answer.

Bravo Co. collects sales over 3 months: 30% in month of sale, 50% the following month, 20% the second month.Which risk is most directly managed by preparing a cash budget?单项选择题

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