Skip to content

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

Which of the following is a limitation of financial forecasting that management must keep in mind?

A key limitation is that forecasts rely on assumptions about the future, so unexpected changes in market, costs or the economy can make actual results differ from estimates. Forecasts are not exact, cover many items beyond sales, and do not remove the need to monitor actual performance.

  1. AForecasts are always exact because they are based on audited figures
  2. BForecasts depend on assumptions about the future, so unexpected changes can make actual results differ from estimatesCorrect
  3. CForecasts can only be prepared for sales and not for other items
  4. DForecasts eliminate the need to monitor actual performance

Explanation

Forecasts rest on assumptions about sales growth, costs, and economic conditions, which may not hold true. Hence actual results can deviate, and variances must be monitored and forecasts revised. They can be prepared for many items, and they are not exact.

Did you get it right without looking?

One question tells you little. A timed set on Forecasting Financial Statements shows your real accuracy, how long you take and where you lose marks.

Practise Forecasting Financial StatementsFree diagnostic mock

More Forecasting Financial Statements questions