Question

The cash budget serves which of the following purposes?

a. Documents the need for liberal inventory policies.
b. Reveals the amount of depreciation expense.
c. Reveals the amount lost due to uncollectible accounts.
d. Provides information about the ability to repay loans.
e. None of the above.

Answer 1

The cash budget is used to track the company's ability to generate enough cash to meet its financial obligations, including repaying loans. Option d is correct.

Step-by-step explanation:

The cash budget is instrumental in a company's financial management. It serves the purpose of providing information about a company's liquidity and its ability to generate cash to meet obligations, including the ability to repay loans. This is crucial for both the management and external stakeholders such as creditors or investors who may be interested in the company's financial health and ability to meet its short-term liabilities. Therefore, the correct answer to the student's question is that the cash budget provides information about the ability to repay loans.