Cash Budgeting

A small company specializing in the sale and installation of swimming pools was profitable but has devoted very little attention to the management of its working capital. It had, for example, never prepared or used a cash budget. To be sure that money was available for payments as needed, the firm kept a minimum of $25,000 in a checking account. At times, this account grew larger; it totalled $43,000 on one occasion. The owner felt that this approach to cash management worked well for the small company because it eliminated all the paperwork associated with cash budgeting. Moreover, it enabled the firm to pay its bills in a timely manner. (Note: In answering the questions pertaining to this situation, refer both Chapter 22 and to Chapter 10, where cash budgets are described.) Question 1) What are the advantages and weaknesses of the minimum cash balance practice? Question 2) There is a saying. "If it ain't broke, don't fix it." In view of the firm's present success in paying bills promptly, should it be encouraged to use a cash budget? Be specific, and explain your reasoning