CAM CAM Financial Management & Budgeting 2 — Questions and Answers
Question 1: Which accounting method records revenue when earned and expenses when incurred, regardless of cash movement?
- Cash-basis accounting
- Accrual accounting (Correct answer)
- Fund accounting
- Modified cash-basis accounting
Correct answer: Accrual accounting
Accrual accounting matches revenues with the period they are earned and expenses with the period they are incurred.
Question 2: An administrative manager reviewing a vendor invoice notices a charge for services not yet rendered. This is best categorized as a:
- Prepaid expense (Correct answer)
- Accrued liability
- Capital expenditure
- Deferred revenue
Correct answer: Prepaid expense
A prepaid expense is a payment made in advance for goods or services to be received in a future period.
Question 3: Which cost allocation method assigns overhead costs to departments based on each department's proportional use of shared resources?
- Direct method
- Step-down method
- Activity-based costing (Correct answer)
- Standard costing
Correct answer: Activity-based costing
Activity-based costing allocates overhead by identifying cost drivers that reflect actual resource consumption in each activity.
Question 4: A manager is asked to perform a cost-benefit analysis. What is the primary purpose of this analysis?
- To calculate employee overtime pay
- To compare the total expected costs of a project against its anticipated benefits (Correct answer)
- To determine quarterly tax liability
- To schedule vendor payments
Correct answer: To compare the total expected costs of a project against its anticipated benefits
Cost-benefit analysis evaluates whether the projected benefits of a decision outweigh its total costs to support sound resource allocation.
Question 5: Internal controls over financial processes are primarily designed to:
- Maximize employee compensation
- Prevent and detect errors, fraud, and misuse of assets (Correct answer)
- Increase departmental headcount
- Accelerate accounts payable processing
Correct answer: Prevent and detect errors, fraud, and misuse of assets
Internal controls are policies and procedures that safeguard assets, ensure accurate financial reporting, and deter fraudulent activity.
Question 6: Which type of budget adjusts projected figures periodically throughout the year to reflect actual performance and revised forecasts?
- Static budget
- Flexible budget (Correct answer)
- Capital budget
- Master budget
Correct answer: Flexible budget
A flexible budget is updated as actual activity levels become known, making it more accurate than a static budget for performance evaluation.
CAM CAM Financial Management & Budgeting 2
Which accounting method records revenue when earned and expenses when incurred, regardless of cash movement?