Final answer:
The statement that a pro forma balance sheet requires data from the prior balance sheet and the cash budget is True. The prior balance sheet offers baseline values, while the cash budget projects future cash flow, vital for estimating future financial position. Option A is correct answer.
Step-by-step explanation:
Creating a pro forma balance sheet is an essential task in business financial planning and forecasting. The statement itself represents an estimation of a company's financial position in the future, outlining potential assets, liabilities, and equity at a specific time. It is instrumental in helping management and investors understand the anticipated financial structure and condition of a business moving forward.
To construct a pro forma balance sheet, one not only needs to use data from the prior balance sheet but also requires additional financial information. This includes projections based on the company's operations, investment strategies, and financing plans. A critical component to consider within these projections is the cash budget, which provides an estimate of the cash inflows and outflows over a particular period. It allows the company to anticipate changes in its cash position, which is crucial for accurate balance sheet forecasting.
For these reasons, the statement 'A pro forma balance sheet needs data from the prior balance sheet and the cash budget' is True. The prior balance sheet provides foundational figures, while the cash budget adds a dynamic element by forecasting future cash positions, directly affecting the accounts on the balance sheet such as cash, accounts receivable, and any debt or equity changes that might occur.