Economics · Cost Accounting

Assertion (A): In the preparation of a Cash Budget, a firm must exclusively focus on the projected profitability of the entity as shown in the Projected Profit and Loss Account to determine the liquidity status and the requirement for short-term bank borrowings. Reason (R): Net Profit and Net Cash Flow are essentially the same in the long run because all credit sales are eventually collected as cash, all credit purchases are paid for in cash, and non-cash items like depreciation are merely book entries that do not influence the actual solvency or debt repayment capacity during a specific budget period.