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

Which statement about the sales forecast in the preparation of projected financial statements is most appropriate?

The sales forecast is normally the starting point of projecting financial statements, because costs, working capital, asset requirements and funding needs are largely driven by expected sales. It therefore comes first, not after the projected balance sheet, and feeds the profit and loss account as well.

  1. AIt is usually the starting point because most other items such as costs and assets depend on projected salesCorrect
  2. BIt is prepared last, after the projected balance sheet is complete
  3. CIt is unnecessary where the company has fixed assets
  4. DIt is relevant only to the cash flow statement and not to the profit and loss account

Explanation

Projected costs, working capital and asset needs are derived from expected sales, so the sales forecast is generally prepared first. Preparing it last or treating it as irrelevant to the profit and loss account is wrong.

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