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I am using the Cirrus app which creates a new Google Docs folder each time new record is created in Salesforce. Is it possible to have the generated document automatically go to the Google Docs folder assigned?

Yes, take the button code from Document Action to paste into custom button and then add: &folderId={folder id field} at the end of the custom URL. Then merge the field that gives the folder id for you would to link with your Cirrus app to automatically link Google Drive folder would most likely be: &folderId={Collection ID}.