Which of the following statements concerning the cash budget is CORRECT?
A) Cash budgets do not include financial items such as interest and dividend payments.
B) Cash budgets do not include cash inflows from long-term sources such as the issuance of bonds.
C) Changes that affect the DSO do not affect the cash budget.
D) Capital budgeting decisions have no effect on the cash budget until projects go into operation and start producing revenues.
E) Depreciation expense is not explicitly included, but depreciation's effects are reflected in the estimated tax payments.

Question

Quizplus · Accepted Answer

Depreciation expense is not explicitly included in the cash budget, but it indirectly affects the budget through its impact on taxes. Since depreciation is a non-cash expense, it reduces taxable income and therefore reduces the amount of taxes paid, which in turn increases cash flow. Therefore, depreciation's effects are reflected in the estimated tax payments, which are included in the cash budget. Choices A, B, C, and D are incorrect statements about the cash budget.

Which of the Following Statements Concerning the Cash Budget Is