Question

You have been asked to prepare a December cash budget for Ashton Company, why?

A) To estimate expenses
B) To project future cash flows
C) To evaluate investment opportunities
D) To analyze market trends

Answer 1

The question refers to the preparation of Ashton Company's December cash budget. The purpose of creating this cash budget is B) To project future cash flows

Step-by-step explanation:

A cash budget is essential for an organization to effectively manage its finances. In this case, preparing a December cash budget for Ashton Company serves multiple purposes:

1. To estimate expenses: By creating a cash budget, Ashton Company can forecast its anticipated expenses for the month of December. This includes fixed expenses such as rent, utilities, and salaries, as well as variable expenses like inventory purchases or advertising costs.
2. To project future cash flows: A cash budget allows Ashton Company to estimate the inflows and outflows of cash during the month. It helps in determining if there will be sufficient cash on hand to cover expenses and identifies potential surpluses or deficits.
3. To evaluate investment opportunities: With a cash budget, Ashton Company can assess its ability to invest in new projects or opportunities. It provides visibility into the available cash that can be allocated towards growth initiatives or potential investments.

Preparing a December cash budget for Ashton Company is important to estimate expenses, project future cash flows, and evaluate investment opportunities.