Final answer:
The statement about the cash budget approach maintaining a constant relationship between balance sheet accounts and cash is false. Cash budgets focus on actual cash flow, and balance sheet accounts may change independently and not maintain a constant relationship to cash.
Step-by-step explanation:
The statement "The cash budget approach to financial forecasting assumes that balance sheet accounts maintain a constant relationship to cash" is false. The cash budget focuses primarily on the inflows and outflows of cash within a specified time period and does not assume constant relationships between cash and all balance sheet accounts. Instead, it helps businesses predict cash requirements and manage their cash flow effectively. While a T-account balance sheet does provide a snapshot of assets and liabilities at a point in time, the cash budget is more dynamic, tracking the flow of cash over time. Forecasting involves anticipating changes and adjusting for future financial conditions, so balance sheet accounts like accounts receivable or inventory may not keep a constant relationship with cash.
Furthermore, forecasting techniques may require adjusting balance sheet accounts relative to sales or other operational drivers, which can fluctuate, rather than maintaining them at a constant ratio to cash. For example, as sales grow, inventory and accounts receivable may grow disproportionately if not managed correctly, thus altering their relationship to cash.