Which statement about cash-flow forecasting is true?

Which statement about cash-flow forecasting is true?

• A. It helps anticipate cash shortages
• B. It guarantees no cash shortfalls
• C. It eliminates financing needs
• D. It only forecasts revenues

Answer: (A)

Cash-flow forecasting shows how cash is expected to move in and out over a future period, focusing on timing and amount of receipts and payments. This helps you spot when cash might be tight, so you can arrange financing early, adjust spending, or change terms to avoid a shortfall. It’s a planning tool, not a guarantee—unexpected events can still create gaps. It also doesn’t eliminate financing needs; forecasting informs how much financing might be required and when. And it isn’t limited to revenues—expenses, payments, capital outlays, and other cash movements are all part of the forecast.

Cash-flow forecasting shows how cash is expected to move in and out over a future period, focusing on timing and amount of receipts and payments. This helps you spot when cash might be tight, so you can arrange financing early, adjust spending, or change terms to avoid a shortfall. It’s a planning tool, not a guarantee—unexpected events can still create gaps. It also doesn’t eliminate financing needs; forecasting informs how much financing might be required and when. And it isn’t limited to revenues—expenses, payments, capital outlays, and other cash movements are all part of the forecast.