Suppose a firm’s cash flows do not occur uniformly throughout the month. What effect would this have on the accuracy of the forecasted borrowing

Suppose a firm’s cash flows do not occur uniformly throughout the month. What effect would this have on the accuracy of the forecasted borrowing

Category:
June 6, 2021
5 Views
0
0

Suppose a firm’s cash flows do not occur uniformly throughout the month. What effect would this have on the accuracy of the forecasted borrowing requirements based on a monthly cash budget? How could the firm deal with this problem?

Answer and ExplanationSolution by a verified expert

Explanation

The gap between cash inflows and outflows causes temporary deficit or surplus.

Sample Response

If cash receipts come in uniformly during the month (1/30 each day), but all outflows are paid on the same day each month, this cash budget would no longer be accurate as the inflows are calculated daily while the outflows are calculated monthly.
 
In order to avoid this inaccuracy, the firm can modify its timeline in budgeting from monthly to daily. In addition, changing various assumptions such as cash flow effects of change of sales, target cash balance, customers' payments, etc. Variations in these assumptions will show what has to occur to make the financing requirements more favorable.

Purchase this answer to view it.
Click the button to login/signup and buy full solution at 2 USD only.

The Best Research Paper Writing Service

Would you want to pay someone to write your paper professionally from scratch? 100% Original and 0% AI Content!.

🎓 Write my Essay
📚 Write my Persuasive Essay
📋 Humanize AI Content for Turnitin
💻 Write my Reflective Essay
📑 Write my Research Paper
📜 Write my Thesis Paper
📘 Write my Dissertation
📋 Write my Case Study
📝 Write my Online Exam
✒️ Write my Term Paper
Write my Paper