Question

Which of the following statements is not correct?

A. The sales budget is the starting point in preparing the master budget.
B. The sales budget is constructed by multiplying the expected sales in units by the sales price.
C.
The sales budget generally is accompanied by a computation of expected cash receipts for the
forthcoming budget period.
D.
The cash budget must be prepared prior to the sales budget because managers want to know the
expected cash collections on sales made to customers in prior periods before projecting sales for the
current period.

Answer 1

The incorrect statement is D, as the sales budget is usually prepared before the cash budget, which relies on the sales forecast for its preparation. The cash budget is dependent on the sales budget, not the other way around.

Step-by-step explanation:

The statement that is not correct is: D. The cash budget must be prepared prior to the sales budget because managers want to know the expected cash collections on sales made to customers in prior periods before projecting sales for the current period. In reality, the sales budget is typically the starting point in preparing the master budget, which includes elements such as the production budget, cash budget, and other financial forecasts. The sales forecast forms the basis for projecting future sales, and from there, a company can plan for the cash that will flow in and out. Hence, the sales budget usually precedes the cash budget in the budget preparation process.

To construct a sales budget, a company will multiply the expected sales in units by the sales price, giving them the total sales budget for a particular product or service. As budgets serve the purpose of tracking income and expenses, understanding the expected cash receipts is also crucial as it forms part of the cash flow planning within the budgeting process.