The Value of Budgeting in Short-Term Planning

Assignment 2: Discussion— The Value of Budgeting in Short-Term Planning

Companies receive cash from their accounts receivable over an extended period of time. It is not uncommon for A/R collections to be spread out over 30 days. However, companies must pay their expenses on a much shorter timetable. Employees need to be paid every two weeks and vendors need to be paid in a timely manner, too.  Cash must be managed in such a way that a company can meet its obligations.  All of this must be taken into account for budgeting purposes.

 

For this assignment, address the following questions:

 

  • What are some of the challenges or problems associated with the management of current assets and liabilities?  How should companies address these problems?
  • Should a company attempt to match the maturity of their assets with the liabilities used to finance those assets?  What are the advantages and disadvantages of doing or not doing this matching of assets and liabilities?   Explain your answers.
  • What are the benefits to the organization of having a well developed cash budgeting plan?  What are some of the risks of not having a sound cash management plan?  Explain your answers.