Chapter_9 - CHAPTER 9 FINANCIAL PLANNING AND FORECASTING...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 9 - Page 1 CHAPTER 9 FINANCIAL PLANNING AND FORECASTING FINANCIAL STATEMENTS (Difficulty: E = Easy, M = Medium, True-False Easy: Sales forecast Answer: a Diff: E 1. A typical sales forecast, though concerned with future events, will usually be based on recent historical trends and events as well as on forecasts of economic prospects. a. True b. False Sales forecast Answer: b Diff: E 2. Errors in the sales forecast can be offset by similar errors in costs and income forecasts. Thus, as long as the errors are not large, sales forecast accuracy is not critical to the firm. a. True b. False Spontaneously generated funds Answer: a Diff: E 3. As a firm's sales grow its current asset accounts tend to increase. For instance, as sales increase the firm's inventories increase and its level of accounts payable will increase. Thus, spontaneously generated funds will arise from transaction accounts that increase as sales increase. a. True b. False Spontaneously generated funds Answer: b Diff: E 4. The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales, assuming the firm is operating with a positive profit margin. Asset increase 5. An increase in the firm's inventory balance will normally require additional financing unless the increase is matched by an equally large decrease in some other asset account.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon