Question

Michael is preparing the company's cash budget. when preparing the cash disbursements section, he includes inventory, labor, overhead, selling expenses, administrative expenses, depreciation, dividends, and income taxes. what error did michael make? will cash disbursements be too high or too low as a result of this mistake?
a.michael failed to include credit sales in his estimate, which would make cash disbursements too low.


b.michael included depreciation in his estimate, which would make cash disbursements too high.


c.michael failed to include financing in his estimate, which would make cash disbursements too low.


d.michael included income taxes in his estimate, which would make cash disbursements too high.

Answer 1

Answer:

b.michael included depreciation in his estimate, which would make cash disbursements too high.

Explanation:

Cash disbursement is defined as outflow of cash that is paid in the process of obtaining goods and services. Cash disbursement can also be in the form of refunds to a customer or dividend payments.

Items we can include in cash disbursement include: inventory, labor, overhead, selling expenses, administrative expenses, dividends, and income taxes.

Depreciation is not part of cash disbursement as it does not involve outlay of cash, but rather reduction in value if assets.

Answer 2

Answer:

The correct option is (C). Michael failed to include financing in his estimate, which would make cash disbursements too low.

Explanation:

Financing is a big source of cash disursement since projects and programmes must be funded to get completed. Therefore, it will certainly make cash disbursement too low because a big spending source was ommitted as a mistake.