A cash flow budget projected for the next year can provide information on...

A cash flow budget projected for the next year can provide information on...

• A. Projected borrowing requirements and repayment ability
• B. Projected profits from each enterprise
• C. Long-term asset purchases
• D. Inventory levels

Answer: (A)

A cash flow budget for the coming year centers on the timing and amount of cash coming in and going out. Because it maps how much cash you’ll have each month, it directly shows whether you’ll need funds from outside lenders and whether you’ll have enough cash to meet loan repayments. In other words, it reveals liquidity and financing needs for the year, which is exactly what borrowing requirements and repayment ability are about. Profits from each enterprise are determined by the income statement and accrual accounting, not by the cash flow schedule. Long-term asset purchases and inventory levels are important planning concerns, but they’re driven by separate analyses (capital budgeting and inventory management). The cash flow budget’s strength lies in signaling when cash will be tight or ample, guiding the need to borrow and the capacity to repay.

A cash flow budget for the coming year centers on the timing and amount of cash coming in and going out. Because it maps how much cash you’ll have each month, it directly shows whether you’ll need funds from outside lenders and whether you’ll have enough cash to meet loan repayments. In other words, it reveals liquidity and financing needs for the year, which is exactly what borrowing requirements and repayment ability are about.

Profits from each enterprise are determined by the income statement and accrual accounting, not by the cash flow schedule. Long-term asset purchases and inventory levels are important planning concerns, but they’re driven by separate analyses (capital budgeting and inventory management). The cash flow budget’s strength lies in signaling when cash will be tight or ample, guiding the need to borrow and the capacity to repay.