COA Financial Management & Budgeting Flashcards

When preparing a departmental budget, which expense would typically be classified as a direct cost?

Answer: Office supplies purchased specifically for that department

Direct costs are directly traceable to a specific department or cost center, such as supplies purchased exclusively for that department's use.

What is the primary purpose of a budget variance report?

Answer: To compare actual spending against budgeted amounts and identify differences

A budget variance report highlights the differences between planned budget figures and actual expenditures, enabling corrective action.

An unfavorable budget variance in office supplies means the department:

Answer: Spent more than budgeted

An unfavorable (or adverse) variance occurs when actual costs exceed the budgeted amount, indicating overspending.

Which of the following best describes 'accrual basis' accounting?

Answer: Revenue is recorded when earned and expenses when incurred, regardless of cash flow

Accrual basis accounting recognizes revenue when earned and expenses when incurred, matching them to the period they relate to regardless of cash movement.

A company's gross profit is calculated by subtracting which of the following from net sales?

Answer: Cost of goods sold

Gross profit = Net Sales minus Cost of Goods Sold (COGS), representing profit before operating expenses are deducted.

What is the purpose of a purchase order (PO) in office financial management?

Answer: To authorize a specific purchase and establish a contractual agreement with the supplier

A purchase order is an official document authorizing a purchase, specifying items, quantities, and prices, forming a binding agreement with the supplier.

If a company has total assets of $500,000 and total liabilities of $320,000, what is the owner's equity?

Answer: $180,000

The accounting equation states Assets = Liabilities + Owner's Equity, so Owner's Equity = $500,000 - $320,000 = $180,000.