Which of the Following Statements Is CORRECT

question 5

Multiple Choice

Which of the following statements is CORRECT?

• A) the afn equation for forecasting funds requirements requires only a forecast of the firm's balance sheet. although a forecasted income statement may help clarify the results, income statement data are not essential because funds needed relate only to the balance sheet.
• B) dividends are paid with cash taken from the accumulated retained earnings account, hence dividend policy does not affect the afn forecast.
• C) a negative afn indicates that retained earnings and spontaneous liabilities are far more than sufficient to finance the additional assets needed.
• D) if the ratios of assets to sales and spontaneous liabilities to sales do not remain constant, then the afn equation will provide more accurate forecasts than the forecasted financial statements method.
• E) any forecast of financial requirements involves determining how much money the firm will need, and this need is determined by adding together increases in assets and spontaneous liabilities and then subtracting operating income.

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Definitions:

Interim Reporting

The financial statements issued by a company for a period shorter than the fiscal year, such as quarterly or semi-annually, to provide investors and stakeholders with timely financial information.

Gross Profit

Gross Profit is the financial metric reflecting the difference between sales revenue and the cost of goods sold (COGS), indicating the efficiency of a company in managing its production and labor costs.

Standard Costing System

A cost accounting method that assigns expected costs to each unit of product to help managers control production costs.

Interim Financial Report

Financial statements that are issued for periods shorter than a fiscal year, typically quarterly, providing investors and others with an update on a company's financial health.