Operating and master budgets

Question 1

Operating budgets

Answer 1

The operating budget lists the income and expenses that is generated after startup. The reason for preparing an operating budget is that you assess whether your personal finances have been properly provided for.

Question 2

P&L (variable and absorption)

Answer 2

P&L is defined as the profit and loss statement, which financially summarizes the revenue, costs and expenses incurred during a specified period. It can be defined as variable or absorption costing.

Question 3

Depreciation

Answer 3

Depreciation represents how much of an asset’s value has been used up.

Depreciation = (Fixed cost - salvage value) / Lifetime

Question 4

EBITDA

Answer 4

Earnings Before Interests, Taxes, Depreciation and Amortization is a measure of a company’s overall financial performance.

Question 5

EBIT

Answer 5

Earnings Before Interests and Taxes is an indicator of a company’s profitability. EBIT is used to analyze the performance of a company’s core operations without the costs of the capital structure and tax expenses impacting profit.

Question 6

Cash budget

Answer 6

A cash budget is an estimation of the cash flows for a business over a specific period of time. This budget is used to assess whether the entity has sufficient cash to operate.

Question 7

Balance sheet (variable costing)

Answer 7

It is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders

Question 8

Master budgets

Answer 8

The master budget is the aggregation of all lower-level budgets produced by a company’s various functional areas, and also includes budgeted financial statements, a cash forecast, and a financing plan.