AP Financial Management & Budgeting Flashcards

What does GAAP stand for in the context of US financial reporting?

Answer: Generally Accepted Accounting Principles

GAAP stands for Generally Accepted Accounting Principles, the standard framework for financial accounting in the United States.

A department's budget is $120,000 for the year. By the end of Q2, $75,000 has been spent. Is the department on track?

Answer: No, because $75,000 exceeds the 50% midyear benchmark of $60,000

At the midpoint of the year (Q2), the expected spend is 50% of $120,000 = $60,000; spending $75,000 means the department is 25% over pace.

Which accounting principle states that revenue should be recorded when earned, not when cash is received?

Answer: Accrual principle

The accrual principle requires that revenue is recognized when it is earned regardless of when the actual cash payment is received.

In a capital budget, what is the payback period?

Answer: The time required for an investment to generate returns equal to its initial cost

The payback period measures how long it takes for a capital investment to recover its initial cost through generated cash flows.

What is the purpose of a rolling forecast in financial management?

Answer: To provide a continuously updated financial outlook by adding future periods as past periods close

A rolling forecast is updated regularly to always look a fixed number of periods ahead, providing a more current view than a static annual budget.

Which financial statement summarizes a company's revenues and expenses over a specific period?

Answer: Income statement

The income statement (also called the profit and loss statement) shows revenues, costs, and expenses to reveal net profit or loss for a period.