FIN 340, Spring 2010 Exam 2 Review Prof. David Allen Cash Budgeting • Why do firms prepare a cash budget? • Why do potential creditors (e.g. banks) use cash budgets? • What types of assumptions are typically made in preparing a cash budget? • When building a cash budget spreadsheet, why do we list (most of) the assumptions at the top, rather than building them into the budget itself? • How is the cash budget different from an accrual basis income statement? o Why does depreciation expense appear on the income statement, but not on the cash budget? o Why do the costs of buying fixed assets appear on the cash budget, but not on the income statement? o Why do principal repayments on debt appear on the cash budget, but not on the income statement? • What is scenario analysis in the context of the cash budget? What purpose does it serve? Forecasting Financial Statements (Pro Formas) • Why do firms forecast financial statements for future periods? • What techniques are used to forecast sales in future periods?
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Cash Budget, Generally Accepted Accounting Principles, Prof. David Allen