University of Central Florida (UCF) ACG2071 Principles of Managerial Accounting Practice Test 1

A cash budget is an essential financial tool that helps organizations plan their cash flow over a specific period. It typically contains three critical components: expected cash inflows, expected cash outflows, and the resulting cash balances.

Expected cash inflows represent the money the organization anticipates receiving during the budget period, which can include cash sales, collections from credit sales, and other income sources. Expected cash outflows include all projected expenses that the organization needs to cover, such as payments for supplies, salaries, rent, and other operational costs. By accounting for both inflows and outflows, the cash budget allows organizations to assess their cash position, ensuring they have enough liquidity to cover expenses and avoid cash shortages.

After factoring in the inflows and outflows, the cash budget calculates cash balances, which represent the available cash at any given time during the budget period. This balance is crucial for managing day-to-day operations and making informed financial decisions.

The other choices do not encompass the full scope of what a cash budget entails. For instance, limiting the budget to only expected cash inflows fails to provide a complete financial picture necessary for effective cash management. Similarly, focusing exclusively on a detailed analysis of employee salaries or projected sales neglects other essential elements that contribute

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