Question

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. Shorter-term cash budgets, in general, are used primarily for planning purposes, while longer-term budgets are used for actual cash control. 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. 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.

Answer 1

Answer:

e- 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.

Explanation:

Cash budgets are the budgets that are prepared to forecast the cashflows of the company. The amounts appearing in the Cash budget statement are the budgeted amounts measured by the company.

However, the interest to be paid on loans in the next year is a pre-determined value i.e. the rates of interest on loan are fixed and the return on investment is also fixed. Hence, these both values can be determined exactly. The other amounts appearing on the budget statement are forecasted amounts and the actual results may vary from the budgeted amounts.