AP AP Financial Management & Budgeting

Question 1

Which budgeting approach requires each department to justify all expenditures from scratch each period?

Accepted Answer

Zero-based budgeting

Answer

Zero-based budgeting requires every expense to be re-justified for each new period, starting from zero.

Question 2

What is the primary purpose of a cash flow forecast in AP financial management?

Accepted Answer

To predict future cash availability and potential shortfalls

Answer

A cash flow forecast helps organizations anticipate future cash needs and identify potential funding gaps before they occur.

Question 3

A variance report shows actual spending is $15,000 over a $50,000 budget. What is the variance percentage?

Accepted Answer

30%

Answer

Variance percentage is calculated as (variance / budgeted amount) × 100 = (15,000 / 50,000) × 100 = 30%.

Question 4

Which financial ratio measures a company's ability to pay short-term obligations using its most liquid assets?

Accepted Answer

Quick ratio

Answer

The quick ratio (acid-test ratio) measures ability to meet short-term liabilities using assets that can be quickly converted to cash.

Question 5

In AP financial planning, what does the term 'encumbrance' refer to?

Accepted Answer

Funds reserved for a committed but not yet paid expense

Answer

An encumbrance is a reservation of budget funds for a purchase order or contract that has been committed but not yet invoiced or paid.

AP - Advance Placement Practice Test