What are forecasts? What role do they play in the preparation of ...

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What are forecasts? What role do they play in the preparation of pro forma financial statements?
 
  What will be an ideal response?

Question 2

Terry Wells owns a growing company that makes innovative kitchen appliances.
 
  One thing that Terry has to continually work at is to keep enough cash on hand to make sure she has sufficient liquidity to meet her payroll and cover her other short-term obligations. The day-to-day challenge of firm growth this example is referring to is ________.
  A) quality control
  B) capital constraints
  C) price stability
  D) cash flow management
  E) personnel issues

[HandsomeMarc]

Answer to Question 1

Forecasts are projections of a firm's future sales, expenses, income, and capital expenditures. A firm's forecasts provide the basis for its pro forma financial statements. A well-developed set of pro forma financial statements helps a firm create accurate budgets, build financial plans, and manage its finances in a proactive rather than a reactive manner.

Answer to Question 2

D