Which statement about the cash budget is correct?
A)It can show managers when additional financing will be necessary.
B)It can show managers when the company will experience a net loss.
C)It can indicate when sales are insufficient.
D)It is also called the statement of cash flows.

Question

Quizplus · Accepted Answer

The cash budget is a financial tool that helps managers plan for the inflow and outflow of cash. By forecasting expected cash receipts and disbursements, the cash budget can also reveal when a company may need additional financing to cover a shortfall. Option B is incorrect because the cash budget is only concerned with cash inflows and outflows and cannot directly show when a company will experience a net loss. Option C is also incorrect because, while the cash budget can highlight periods of low cash flow, it does not necessarily indicate that sales are insufficient. Option D is incorrect because the cash budget is different from the statement of cash flows, which reports actual cash flows from operating, investing, and financing activities.

Which Statement About the Cash Budget Is Correct