Final answer:
The incorrect statement about financial management is that a firm must ensure it pays dividends to shareholders. Effective financial management encompasses planned spending, timely collection of receivables, and setting financing priorities inline with goals, but not mandatory dividend payments. Therefore, the correct answer is Option A.
Step-by-step explanation:
Regarding proper financial management in a business, the incorrect statement is that it must ensure that the firm pays dividends to its shareholders. This is not a requirement as a company may choose to reinvest profits back into the business to promote growth, especially if it is not generating significant profits. An effective financial management system must certainly ensure that the firm's spending is planned and controlled (B), that the firm's credit customers pay their bills on time (C), and that the firm's financing priorities are established in line with organizational goals and objectives (D).
When accessing financial capital, a firm can choose between borrowing money, through bank loans or bonds, and selling stock. Borrowing money allows a firm to maintain control over its operations without being answerable to shareholders, but comes with the commitment of scheduled interest payments. In contrast, issuing stock means selling off company ownership and being accountable to shareholders and a board of directors, but it does not require scheduled repayments, allowing for more flexibility particularly when profits are low.