COA COA Financial Management & Budgeting 1 — Questions and Answers
Question 1: Which financial document summarizes an organization's revenues, expenses, and net income over a specific period?
- Balance sheet
- Income statement (Correct answer)
- Cash flow statement
- Statement of retained earnings
Correct answer: Income statement
An income statement (also called a profit and loss statement) summarizes revenues and expenses to show net income or loss over a reporting period.
Question 2: A budget that adjusts for changes in activity levels or volume is called a:
- Static budget
- Zero-based budget
- Flexible budget (Correct answer)
- Capital budget
Correct answer: Flexible budget
A flexible budget adjusts revenue and expense projections based on actual activity levels, making it useful for performance evaluation.
Question 3: In accounts payable management, the term 'net 30' means:
- A 30% discount applies to the invoice
- Payment is due within 30 days of the invoice date (Correct answer)
- The invoice covers 30 days of service
- A 30-day extension can be requested
Correct answer: Payment is due within 30 days of the invoice date
Net 30 is a payment term indicating that the full invoice amount is due within 30 days of the invoice date.
Question 4: Which budgeting method requires managers to justify every line-item expense from scratch each period?
- Incremental budgeting
- Zero-based budgeting (Correct answer)
- Activity-based budgeting
- Rolling budget
Correct answer: Zero-based budgeting
Zero-based budgeting starts from zero each cycle, requiring justification for all expenditures rather than adjusting prior-period figures.
Question 5: Petty cash is best described as:
- The company's main operating account
- A small fund used for minor day-to-day office expenses (Correct answer)
- Funds reserved for emergencies only
- The payroll processing account
Correct answer: A small fund used for minor day-to-day office expenses
Petty cash is a small, accessible fund kept on hand to cover incidental or minor expenses without requiring a formal purchase order.
Question 6: What is the purpose of a purchase order (PO) in office financial management?
- To record received payments from clients
- To authorize and document a request to buy goods or services (Correct answer)
- To track employee expense reimbursements
- To record depreciation of assets
Correct answer: To authorize and document a request to buy goods or services
A purchase order is an official document issued by a buyer to a seller, authorizing the purchase and specifying items, quantities, and agreed prices.
COA COA Financial Management & Budgeting 1
Which financial document summarizes an organization's revenues, expenses, and net income over a specific period?