An important reason for imposing a minimum cash balance in the cash budget is:

Question

Quizplus · Accepted Answer

The important reason for imposing a minimum cash balance in the cash budget is to provide a cushion that can absorb forecast errors. Maintaining a minimum cash balance ensures that the company can cover unexpected expenses and emergencies without having to resort to borrowing, which can be costly. Additionally, having a minimum cash balance helps to minimize the risk of bank overdrafts and provides a safety net in case of a temporary cash flow shortage. The other options, B and C, are not valid reasons for maintaining a minimum cash balance.

An Important Reason for Imposing a Minimum Cash Balance in the Cash