Budgeting

Question 1

Amortization

Answer 1

1. schedule of payments whereby a loan is paid off gradually over time
2. expensing the cost of an intangible asset over time

Question 2

Depletion

Answer 2

allocate the cost of extracting natural resources

non-cash expense that lowers the cost value of an asset incrementally

Question 3

cash flow statement

Answer 3

cash flow from operating activities
cash flow from investing activities
cash flow from financing activities

Question 4

Cash Flow from Operating

Answer 4

• Cash received from the sale of goods and services
• Interest payments
• Salary and wages paid
• Payments to suppliers for inventory or goods needed for production
• Income tax payments

Question 5

Cash Flow From Operations Indirect

Answer 5

Net income
+ Depreciation
+ Depletion
+ Amortization
-/+ Increase/Decrease in accounts receivable
+/- Increase/Decrease in accounts payable
+/- Adjustments To Net Income
+/- Changes In Liabilities
+/- Changes In Inventories

Question 6

cash flow from investing

Answer 6

• purchase of fixed assets
• investments such as stocks or securities
• lending money
  + sale of fixed assets
  + sale of investment securities
  + collection of loans and insurance proceeds

Question 7

Cash Flow from Financing

Answer 7

+ Cash inflows from issuing equity or debt
+/- Borrowing/loan repayment
- Dividend payments
- Repurchase of depth and equity

Question 8

Accounts receivable

Answer 8

balance of money owed by customers for purchases made on credit

listed on the balance sheet as a current asset

Question 9

Accounts Payable

Answer 9

Amounts to be paid in the future for goods or services already acquired

Question 10

Marketable Securities

Answer 10

assets that can be liquidated to cash quickly

either debt or equity

Question 11

Components of Balance Sheet

Answer 11

assets vs liabilities and stockholders equity

Question 12

Assets (balance sheet)

Answer 12

Current Assets (converted to cash in one year or less)

• Cash and Cash Equivalents
• Accounts Receivable
• Inventory

long-term assets:

• fixed Assets
• long-term investments
• intangible assets (intellectual prop, …)

Question 13

Liabilities (balance sheet)

Answer 13

Current Liabilities (converted to cash in one year or less)
+ bank indebtedness
+ accounts payable
+ wages payable
+ accruals
+ customer prepayments
+ dividends payable and others
long-term Liabilities
+ Long-term debt
+ Pension fund liability
Shareholder Equity
+ Retained earnings
+ Common Stock
- Treasury stock

Question 14

Current Liabilities

Answer 14

a company’s short-term financial obligations

Question 15

Current Liabilities

Answer 15

a company’s short-term financial obligations

Question 16

accruals

Answer 16

needed for any revenue earned or expense incurred, for which cash has not yet been exchanged

Question 17

Treasury Stock

Answer 17

A corporation’s own stock that has been reacquired by the corporation and is being held for future use.

Question 18

Shareholder Equity

Answer 18

money attributable to the owners of a business
difference between a firm’s total assets and total liabilities

Question 19

Shareholder Equity

Answer 19

money attributable to the owners of a business
difference between a firm’s total assets and total liabilities

Question 20

Retained earnings

Answer 20

net earnings a company either reinvests in the business or uses to pay off debt

amount of net income left over for the business after it has paid out dividends to its shareholders

Question 21

Total assets

Answer 21

sum of liabilities and total shareholder equity

Question 22

What is “planning”?

Answer 22

planning is the process of establishing company-wide objectives

Question 23

What is a “budget”?

Answer 23

A budget is formal written statement of management plans for a specific time period

Question 24

Describe the relationship between accounting numbers and budgeting.

Answer 24

accounting delivers historical data on revenues, cost, … which is helpful for the budgeting process

Question 24

Describe the relationship between accounting numbers and budgeting.

Answer 24

accounting delivers historical data on revenues, cost, … which is helpful for the budgeting process

Question 25

What are the primary benefits of budgeting?

Answer 25

• plan ahead and formalize
• definite objectives
• early warning system
• facilitates the coordination of activities
• motivates personnel

Question 26

Within what framework is the budget developed?

Answer 26

within the framework of sales forecast, factors

• economic conditions, trends, studies
• market share
• technological developments

Question 27

What is the “master budget”?

Answer 27

a set of interrelated budgets that constitutes a plan of actions for a time period
two forms:

1. operating budgets
2. financial budgets

Question 28

What is a “static” budget report?

Answer 28

projection of budget data at one level of activity

Question 29

Under what circumstances is a static budget appropriate?

Answer 29

evaluating managers effectiveness when

• actual level of activity approximates the master budget activity level
• behavior of costs in response to changes in activity is fixed

Question 30

What is a “flexible” budget report?

Answer 30

project budget data for various levels of activity, series of static budgets