M6-Budgeting: Part 2 Flashcards
The main reason for preparing a cash budget is to anticipate cash flows so that excess cash can be invested and to minimize the need for interim financing. (true or false)
true
The cash budget provides information concerning the need for external financing, not internal financing. (true or false)
true
A flexible budget adjusts the budget amounts for different levels of activity. The flexible budget identifies volume components of variances from planned activity. (true or false)
true
The budgeted income statement produces anticipated accrual basis net income or loss and is added to beginning owner’s equity to generate the owner’s equity section of the budgeted balance sheet. (true or false)
true
Operating budgets describe the plan for revenue and expenses and the supporting schedules that go with them. Examples include sales, materials, labor, overhead, production, purchases and the forecasting of cash that will be necessary to pay for them. Capital budgets plan for the purchase of capital assets, which will only affect the operating budget through their subsequent effect on expense via depreciation. (true or false)
true
A flexible budget is a budget prepared at different levels of operating activity. It is appropriate for any activity that has variable costs. It is not necessary for the control of fixed costs since fixed costs do not vary with changes in the level of activity. (true or false)
true
A flexible budget provides cost allowances (adjustments) for different levels of activity. A static budget provides costs for one level of activity. (true or false)
true
The statement of cash flows is usually the last pro form statement prepared. This is because everything affects cash. Only when everything else has been estimated can cash flow be projected. (true or false)
true
A flexible budget uses budgeted revenue and costs per unit, but it is adjusted based on actual units of output. (true or false)
true
A master budget is an overall budget, consisting of many smaller budgets, that is based on one specific level of production. A flexible budget is a series of budgets based on different activity levels within the relevant range. (true or false)
true
A flexible budget allows comparison of actual results with a budget based on achieved volume. The flexible nature of this type of budget allows adjustment to the actual volume. (true or false)
true
Flexible budget variance is the difference between the actual amounts and the flexible budget amounts for the actual output achieved. (true or false)
true
The simplest (most direct) cash budget would include the components of cash collections (sales and percentage of collection) and cash disbursements (purchases and terms of payment). (true or false)
true
In developing its capital budget, management would find the employee input associated with equipment requests from various profit centers most helpful. Departmental requests, appropriately justified, would provide key insights into the capital requirements of the business that are not otherwise known. (true or false)
true
