Which of the following statements is correct?

Question

Quizplus · Accepted Answer

The statement in option B is correct as establishing sales forecast is the first step in constructing pro forma financial statements, which are future financial statements based on projected or estimated financial data. Option A is incorrect as identifying those assets and liabilities which increase spontaneously with net income is a key step in preparing a statement of cash flows. Option C is incorrect as pro forma financial statements are used for future forecasting and not to assess past performance. Option D is incorrect as higher payout ratio means more funds are being distributed to shareholders and hence, the firm would need to raise more funds to finance growth. Option E is incorrect as the projected statement of financial position forecasting method does not rely on fixed assets or economies of scale.

Which of the Following Statements Is Correct