AP AP Financial Management & Budgeting 2

Question 1

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

Accepted Answer

Generally Accepted Accounting Principles

Answer

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

Question 2

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?

Accepted Answer

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

Answer

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.

Question 3

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

Accepted Answer

Accrual principle

Answer

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

Question 4

In a capital budget, what is the payback period?

Accepted Answer

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

Answer

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

Question 5

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

Accepted Answer

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

Answer

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.

AP - Advance Placement Practice Test