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Tally - Accounting Software

PROBLEMS OF CASH MANAGEMENT


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Specific Factors

The main determinants of level of receivables are as under

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General Factors of Investment in Receivables

General factors are those factors which are common to all firms and to the investment in all types of assets-fixed and current.

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Determinants of the Size of Investment in Receivables

The level of investment in receivables is determined by the following two factors

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Management or receivables

In most of business enterprises, investments in accounts receivable form a major part of their assets. Accounts receivables is on of the major components of working capital.

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Balance Sheet Method

This method is similar to that of profit and loss adjustment method, a budgeted balance sheet is prepared for the next period showing all items of assets and liabilities except cash balance which is found out as the balancing figure of the two sides of balance sheet.

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Adjusted profit and Loss Method

The method is suitable for preparing the long term estimates of cash inflows and outflows. It is also called cash-flow statement.

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Receipts and Payments Method

It is the most simple and popular method of preparing cash budget. The method is most commonly used in forecasting the sort term cash position.

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Methods of Preparing Cash Budget

There are three usual methods of preparing cash budget as follows-

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Functions or Importance of Cash Budget

Cash budget is an important tool in the hands of financial management for the planning and control of the working capital to ensure the solvency of the firm.

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Cash Budget and Working Capital Budget

The cash budget can be distinguished from the working capital budget. The cash budget is designed to provide for all the needs (capital and revenue) of the business including requirement of funds for acquiring a capital assets, payment of long-term loans and interest thereon, dividend and so on.

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Cash Budget

One of the major responsibilities of financial management is to maintain an adequate balance of cash to ensure the business to make available sufficient cash to met its needs as an when they arise.

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Tools of Cash Control

Proper cash control is possible only when there is person responsible for planning the cash. Businesses exigencies and government polices should also be taken into account white planning the control of cash.

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Tools of cash planning

These include methods which establish the future cash-level in a firm.

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Tools of Cash Planning and Control

Tools of cash planning and control can be divided into two groups-

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Meaning of cash Planning and Control

Cash planning is nothing but simply to forecast the cash needs well in advance for a given period with a view to maintain adequate cash balance in hand, sufficient to met the payments and obligations as and when they mature. Thus it includes forecasting of cash inflows and cash outflows.

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Planning and Control of Cash

Planning and control of cash is the central point of all finance functions. It is one of the primary responsibilities of the financial management to maintain an adequate supply of cash.

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Advantages of Ample Cash Funds

Ample cash funds must be there in the business to carry on regular business operations and to meet the contingencies from time to time. It requires cash planning so that cash may be available at all times when it is needed.

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Contingencies

Cash is the life blood of an enterprise. What blood is to human body, cash is to bushiness enterprise.

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Optimal Investment of Surplus Cash

After controlling inflows and outflows of cash, the next problem is that of investment of surplus cash available with the company, for a short period. The finance executive will have to use its discretion as far as the decision for investment of surplus cash is concerned.

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Controlling Outflow of Cash

Controlling outflow of cash is as important as controlling inflow of cash. It is in the interest of the company to make the payments to its customers on maturity or as early possible.

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