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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. 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.
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. Shorter-term cash budgets, in general, are used primarily for planning purposes, while longer-term budgets are used for actual cash control.
Answer
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Which of the following is not correct for a firm with seasonal sales and customers who all pay promptly at the end of 30 days?
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d. The level of accounts receivable at the end of each quarter will be the same.
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DSO analysis of accounts receivable is the most robust way to see if customers are, on average, paying more slowly, because it is unaffected by seasonal changes in sales.
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b. False