Question

Planned additions of capital equipment from the capital budget are added to the:

I. Pro forma balance sheet

II. Cash budget

A. I only

B. II only

C. Both I and II

D. neither I or II

please explain answer

Answer 1

Answer is C. both I and II

The cash budget is prepared after the operating budgets (sales, manufacturing expenses or merchandise purchases, selling expenses, and general and administrative expenses) and the capital expenditures budget are prepared. The cash budget starts with the beginning cash balance to which is added the cash inflows to get cash available. Cash outflows for the period are then subtracted to calculate the cash balance before financing. If this balance is below the company's required balance, the financing section shows the borrowings needed. The financing section also includes debt repayments, including interest payments. The cash balance before financing is adjusted by the financing activity to calculate the ending cash balance. The ending cash balance is the cash balance in the budgeted or pro forma balance sheet.