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CS Executive · Corporate Accounting and Financial Management · Forecasting Financial Statements

Which of the following best describes the primary purpose of financial forecasting in a company?

The main purpose of financial forecasting is to estimate future financial performance and funding requirements so management can plan funds in advance. It looks forward using assumptions, unlike bookkeeping, auditing or past tax computation, which deal with events that have already occurred.

  1. AEstimating future financial requirements and performance so that plans for funds can be made in advanceCorrect
  2. BRecording past transactions in the books of account in chronological order
  3. CVerifying the accuracy of previously published audited accounts
  4. DComputing the tax payable for the year that has already ended

Explanation

Financial forecasting projects future sales, expenses, assets and funding needs so that management can plan finance ahead. The other options relate to recording, auditing or past tax computation, which look backward and are not forecasting.

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