Question

Which of the following statements is incorrect?

a) All the answers are correct except one.
b) The sales forecast has no significant effect on the other components of the cash budget.
c) Cash budgets help to determine the firm's investing needs and scheduling transactions as well as its short-term borrowing.
d) The preliminary calculations for revenue are needed but there is no need to show the details of these calculations on the cash budget beçause all we need is the total revenue for each period.
e) The cash inflows from the sales of assets or issuing bonds or stock should be included in a cash budget.

Answer 1

The incorrect statement is that the sales forecast has no significant effect on other components of the cash budget. In reality, sales forecasts are vital for effective cash budgeting and influence many related financial decisions within a firm.

Step-by-step explanation:

Among the provided statements, the incorrect one is: b) The sales forecast has no significant effect on the other components of the cash budget. The sales forecast is actually a critical component that influences nearly every other part of the cash budget, such as estimations of future cash inflows, purchasing, investing, and financing decisions. A sound sales forecast helps companies plan their budgeting processes effectively, and is essential for maintaining proper cash flow management.

Cash budgets are important for a firm as they help in understanding investing needs, scheduling transactions, and planning for short-term borrowing. Accurate cash budget planning allows firms to anticipate future cash surpluses or shortages and make informed decisions about capital infusion, expenditures, or financing needs. Revenue projections, including cash inflows from asset sales or the issuing of bonds or stock, must be included in a cash budget to provide a comprehensive view of the firm's financial situation.