1.1.5 Financial Knowledge

Question 1

What is a financial statement?

Answer 1

an official, formal record of an organization’s financial activities

Question 2

What is a balance sheet?

Answer 2

a statement of financial position that reports a company’s assets, liabilities, and equity as of a specific point in time, such as the end of the company’s fiscal year

Assets= Liabilities + Equity

Question 3

What is a income statement?

Answer 3

Also known as a profit and loss statement, report a company’s income, expenses, and profit over a certain period of time

Question 4

What is a cash flow statement?

Answer 4

Reports the flow of cash in and out of a company, showing changes in the balance sheet and how those changes affect the availability of cash

Question 5

What is a budget?

Answer 5

• a plan that describe expected income and expenses over a period of time
• Used in the strategic planning process to express an organization’s plan in measurable terms

Question 6

What are some of the important functions of budgets in the organization

Answer 6

• control income and expenditures
• establish priorities
• set performance goals
• assign responsibilities
• allocate the use of resources
• forecast future needs
• motivate individuals and organizational units
• improve efficiency
• Monitor and evaluate performance

Question 7

Name the types of budgeting methods

Answer 7

• Incremental budgeting
• Top-down budgeting
• Bottom-up budgeting
• Activity- based budgeting
• Formula- based budgeting
• Zero-based budgeting

Question 8

Explain Incremental budgeting

Answer 8

The previous budget is the basis for the new budget, and an incremental allocation, usually a percentage, is added to (or subtracted from) the budget across the board

Question 9

Explain Top-down Budgeting

Answer 9

Upper- level management sets the budget and gives lower-level managers direction on how to allocate the budgeted resources within their areas.

Question 10

Explain Bottom-up Budgeting

Answer 10

Lower- level managers determine the budgets for their individual department and submit them to upper-level managers for review and approved

Question 11

Explain activity- based Budgeting

Answer 11

The organization determines which activities need to take place to meet its goals, and the costs associated with activities determine the budget

Question 12

Explain Formula- based Budgeting

Answer 12

Budgets are calculated using a predetermined formula based on factors such as enrollment. This method is often used in higher education

Question 13

Explain zero- based budgeting

Answer 13

Budgets start from zero, and managers are required to identify every activity and justify every expense