Final answer:
The 'cash collections' section of a cash budget includes the beginning cash balance and expected cash receipts and reflects the company's total cash available. It is vital for predicting liquidity and is similar to the receipts part of the federal budget, covering anticipated revenue like taxes.
Step-by-step explanation:
The section of the cash budget that includes the beginning cash balance and the expected cash receipts is called the cash collections section or sometimes referred to as the cash inflows section. This crucial part of a cash budget reflects both the initial amount of cash available at the beginning of the period and the cash that the company expects to receive during the period, usually from sales or other revenues. In a broader sense, a complete cash budget consists of three main sections: cash receipts (cash inflows), cash disbursements (cash outflows), and financing.
The cash collections section helps the business to project the total cash available which is vital for ensuring there are sufficient funds to cover anticipated cash disbursements. In the context of a federal budget, it is analogous to the receipts section where the government anticipates revenue from taxes and other sources. The ability to accurately forecast these figures is essential for maintaining liquidity and avoiding potential cash shortfalls.
For example, if a company starts the month with a beginning cash balance of $10,000 and expects to receive $50,000 in cash from customers, the total cash collections for the month would be $60,000. This figure is then used to determine if the company has enough cash to cover its expenditures for the period, or if it will need to seek additional financing.