Answer (D) is correct . The cash budget is perhaps the most important part of a company’s budget program. A cash budget facilitates planning for loans and other financing. Conversely, a firm should plan how to invest temporary surpluses of cash. A cash budget is particularly valuable in seasonal businesses in which a few months of revenues must be matched with 12 months of costs. Because a temporary shortage of cash may drive an otherwise financially sound organization into bankruptcy, proper planning can prevent financial embarrassment.
Answer (A) is incorrect because The cash flow statement is based on actual results, not budgeted figures.
Answer (B) is incorrect because A cash budget may facilitate decisions regarding deferral of capital projects; the budget does not ascertain which projects are feasible. The budget provides the total liquidity available for projects.
Answer (C) is incorrect because Cash budgets do not determine opportunity costs.
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