Question

Which of the following statements is incorrect?

a) All the answers are correct except one.
b) Current Borrowing is equal to Minimum Cash minus Unadjusted Cash.
c) A cash budget includes a listing of each of the noncash expenses.
d) A cash budget should include seasonal patterns in the sales forecast if we want the cash budget is to be accurate.
e) Because dividends represent a very real cash expenditure for the firm, a cash budget should include dividends as cash outflow.

Answer 1

The incorrect statement is c) A cash budget includes a listing of each of the noncash expenses, as a cash budget should include only cash inflows and outflows, not noncash expenses like depreciation.

Step-by-step explanation:

The student asked for the identification of the incorrect statement from a list of options related to financial and cash budget matters. The incorrect statement among the ones provided is option c) A cash budget includes a listing of each of the noncash expenses.

This is incorrect because a cash budget should only include transactions that affect cash, hence only cash inflows and cash outflows are considered. Noncash expenses, like depreciation, do not involve actual cash transactions and are not included in a cash budget.

Furthermore, the other options given do seem appropriate when considering a cash budget. Option b) Current Borrowing is equal to Minimum Cash minus Unadjusted Cash might not be expressed in a standard formula, but it posits a scenario where borrowing may be needed if available cash doesn't meet the minimum required.

Option d) indicates that including seasonal patterns in sales forecasts increases the accuracy of a cash budget, which is good practice as cash flows can vary due to seasonality. Option e) is also correct because dividends paid to shareholders are a real cash outflow and should be accounted for in a cash budget.