Which of the following statements is CORRECT?
A) The cash budget and the capital budget are developed separately, and although they are both important to the firm, one does not affect the other.
B) Since depreciation is a non-cash charge, it neither appears on nor has any effect on the cash budget.
C) The target cash balance should be set such that it need not be adjusted for seasonal patterns and unanticipated fluctuations in receipts, although it should be changed to reflect long-term changes in the firm's operations.
D) The typical cash budget reflects interest paid on loans as well as income from the investment of surplus cash.These numbers, as well as other items on the cash budget, are expected values; hence, actual results might vary from the budgeted amounts.
E) Shorter-term cash budgets, in general, are used primarily for planning purposes, while longer-term budgets are used for actual cash control.

Question

Quizplus · Accepted Answer

The statement is correct because interest paid on loans and income from the investment of surplus cash are included in the cash budget, and these figures are expected values that may vary from actual results. Option A is incorrect because the cash budget and capital budget are interrelated, and changes in one may affect the other. Option B is incorrect because depreciation is a non-cash expense that reduces taxable income, and it can affect the cash budget indirectly. Option C is incorrect because the target cash balance should be adjusted for seasonal patterns and unanticipated fluctuations in receipts to ensure that the firm has sufficient cash to meet its obligations. Option E is incorrect because both short-term and long-term cash budgets are used for planning and control purposes.

Which of the Following Statements Is CORRECT