Question
Question 4 Which of the following statement(s) is/are true about a cash budget? (Select the correct answer from the options below the statements) (1) A cash budget informs about whether or not there will be a cash surplus / deficit (2) A cash budget informs about the assets and liabilities of a given entity (3) Acash budget informs about the depreciation costs of assets (1) only (1) and (2) All of the above None of the above 4 pts
Answer
3.7
(230 Votes)
Harley
Veteran · Tutor for 12 years
Answer
(1) only
Explanation
## Step1: First of all, let's take a glance at the definition of a 'Cash Budget'. A cash budget is a financial plan that projects cash inflows from selling goods and services and cash inflows such as interest, loan proceeds, and cash outflows for expenses like wages, rental expenses, taxes, purchases, etc.## Step2: For statement (1), a cash budget indeed expresses whether or not a cash surplus or deficit might be there. The main objective of a cash budget is to understand the inflows and outflows of cash to regulate whether there is surplus cash or a rigorous cash deficiency that could lead the business into trouble.## Step3: For statement (2), a cash budget does not express information about the company's assets and liabilities. Key stake ot accounting statements like balance sheets or statements of financial position sum up an entity's assets and liabilities. Hence, statement (2) is not valid.## Step4: Statement (3) which alludes to a cash budget telling us about the depreciation costs of assets is also incorrect. Depreciation costs, although they effectively entail a part in the consumption of an asset's life, do not consist of a direct cash outflow. Hence, these are not attributed to a cash budget.