Question 1

Once sales are forecasted,________ must be generated to estimate required raw materials.

Accepted Answer

A production plan is necessary to estimate the required amount of raw materials needed to fulfill the forecasted sales. Without a production plan, it would be difficult to determine how much raw material is needed for production. A cash budget, an operating budget, and a pro forma statement are all important financial tools, but they do not directly relate to estimating raw material requirements.

Question 2

In cash budgeting,the impact of depreciation is reflected in a reduction in tax payments.

Accepted Answer

Depreciation is a non-cash expense, meaning it doesn't involve any outflow of cash. However, it reduces taxable income, which ultimately reduces tax payments. Therefore, in cash budgeting, the impact of depreciation is reflected in a reduction in tax payments.

Question 3

Which of the following would be the least likely to utilize a cash budget?

Accepted Answer

Public investors are not typically involved in the internal financial planning and budgeting of a company, so they would not have a need for a cash budget. Top and middle management would use a cash budget to plan and control the company's cash flow, and lenders would use it to assess the borrower's ability to repay a loan.

Question 4

Cash budget is a statement of a firm's planned inflows and outflows of cash that is used to estimate its long-term cash requirement.

Accepted Answer

A cash budget is primarily used for short-term financial planning to manage the company's cash flow, rather than estimating long-term cash requirements.

Question 5

In general,firms that are subject to a high degree of ________,relatively short production cycles,or both,tend to use shorter planning horizons.

Accepted Answer

Firms subject to a high degree of operating uncertainty, such as those with short production cycles, tend to rely on shorter planning horizons to adapt to rapidly changing conditions.

Question 6

The ________ is a financial projection of a firm's short-term cash surpluses or shortages.

Accepted Answer

A cash budget is a financial statement that forecasts a firm's short-term cash surpluses or shortages, taking into account its anticipated cash receipts and disbursements, as well as its current cash position. It is an essential tool for managing a company's liquidity and ensuring that it has sufficient cash on hand to meet its obligations as they come due. The other options listed do not accurately describe a financial projection of a firm's short-term cash position.

Question 7

Since depreciation and other noncash charges represent a scheduled write-off of an earlier cash outflow,they should not be included in a cash budget.

Accepted Answer

Depreciation and other noncash charges do not represent any cash outflows in the current period, so they should not be included in a cash budget which accounts for actual cash inflows and outflows.

Question 8

The more seasonal and uncertain a firm's cash flows,the greater the number of intervals and the shorter time intervals.

Accepted Answer

This is because shorter intervals provide more frequent opportunities to monitor and adjust cash flow management strategies, while a greater number of intervals allows for a more granular analysis of cash flow patterns and potential fluctuations.

Question 9

________ consider proposed fixed-asset outlays,research and development activities,marketing and product development actions,capital structure,and major sources of financing.

Accepted Answer

Long-term financial plans consider the proposed fixed-asset outlays, research and development activities, marketing and product development actions, capital structure, and major sources of financing. Short-term financial plans focus on day-to-day operations and cash flow management. Pro forma statements are financial projections based on assumptions and future expectations, while cash budgeting is a tool used to manage short-term cash flows.

Question 10

________ generally reflect(s)the anticipated financial impact of planned long-term actions.

Accepted Answer

Strategic financial plans generally reflect the anticipated financial impact of planned long-term actions, such as investments, expansions, or new product development. A cash budget is a short-term financial forecast, operating financial plans are focused on daily, weekly, or monthly activities, and a pro forma income statement projects future revenue and expenses for a specific period.

Question 11

A cash budget gives the financial manager a clear view of the timing of a firm's expected profitability over a given period.

Accepted Answer

A cash budget is primarily focused on the timing and amounts of cash inflows and outflows, not directly on the firm's profitability over a given period.

Question 12

An internal sales forecast is based on the relationships that can be observed between a firm's sales and certain key economic indicators such as the gross domestic product,new housing starts,or disposable personal income.

Accepted Answer

An internal sales forecast is primarily based on a company's own historical sales data, trends, and analysis rather than external economic indicators. External economic indicators might be used in external or market-based forecasts.

Question 13

The primary purpose in preparing pro forma financial statements is ________.

Accepted Answer

The answer of The primary purpose in preparing pro forma...

Question 14

Pro forma financial statements are used for ________.

Accepted Answer

Pro forma financial statements are primarily used for profit planning. They help organizations estimate future profits and financial performance by making assumptions about upcoming periods based on current data.

Question 15

The key aspects of a financial planning process are ________.

Accepted Answer

Financial planning process includes the key aspects of cash planning and profit planning. Cash planning involves managing cash flow by forecasting and analyzing the inflow and outflow of cash. Profit planning involves determining the revenue, costs, and profits of an organization, and making decisions to achieve financial goals. Investment planning is also important but not considered a key aspect of financial planning.

Question 16

Cash planning involves the preparation of a firm's cash budget.Without adequate cash-regardless of the level of profits-any firm could fail.

Accepted Answer

Cash is necessary for day-to-day operations, paying bills and expenses, investing in new projects, and managing unforeseen events. Thus, without adequate cash, a firm could fail, regardless of its profitability. Cash planning through the preparation of a cash budget is essential to ensure that the firm has enough cash on hand to meet its obligations and seize opportunities.

Question 17

The primary purpose in preparing a cash budget is ________.

Accepted Answer

The primary purpose of preparing a cash budget is to estimate a firm's short-term cash requirements. It helps a business plan for the inflows and outflows of cash, ensuring that it has enough cash on hand to cover expenses and invest in growth opportunities. A cash budget can also help a business identify potential cash shortages and take proactive measures to address them.

Question 18

Cash budgets and pro forma statements are useful not only for internal financial planning but also are routinely required by the Internal Revenue Service (IRS).

Accepted Answer

Cash budgets and pro forma statements are primarily used for internal financial planning and decision-making. While the IRS may request these documents during an audit, they are not routinely required by the agency.

Question 19

The key outputs of the short-term financial planning process are the ________.

Accepted Answer

The short-term financial planning process primarily involves the preparation of a cash budget, pro forma income statement, and pro forma balance sheet, which are the key outputs for this type of planning. The other options listed may be used in different planning processes or for other purposes, but are not the primary outputs of short-term financial planning.

Question 20

Key inputs to short-term financial planning are ________.

Accepted Answer

Short-term financial planning requires information on sales forecasts, as well as operating and financial data to make decisions about managing cash flow, inventory, and other short-term financial needs. Cash flow statements and income statements are helpful, but they primarily provide information on past performance rather than future projections. Pro forma financial statements and leverage analysis are also useful, but they may be more relevant for longer-term financial planning and strategic decision-making.

Quiz 4: Cash Flow and Financial Planning