CPS CPS Financial Management and Budgeting 1 — Questions and Answers
Question 1: Which financial document summarizes a company's revenues, expenses, and net income over a specific period?
- Balance sheet
- Income statement (Correct answer)
- Cash flow statement
- Accounts payable ledger
Correct answer: Income statement
An income statement (also called a profit and loss statement) reports revenues, expenses, and net income for a given accounting period.
Question 2: A professional secretary processing a vendor invoice should first verify that a matching document exists. What is this three-way matching process?
- Purchase order, invoice, and receiving report (Correct answer)
- Invoice, check, and bank statement
- Purchase order, budget approval, and check
- Invoice, contract, and purchase order
Correct answer: Purchase order, invoice, and receiving report
Three-way matching compares the purchase order, vendor invoice, and receiving report to ensure the goods ordered were received and billed correctly.
Question 3: What term describes the accounting method where revenue is recorded when earned and expenses when incurred, regardless of cash movement?
- Cash basis accounting
- Accrual basis accounting (Correct answer)
- Modified cash accounting
- Hybrid accounting
Correct answer: Accrual basis accounting
Accrual basis accounting records transactions when they occur economically, not when cash changes hands, providing a more accurate financial picture.
Question 4: When preparing a departmental budget, which type of budget starts from zero each cycle and requires justification for every expense?
- Incremental budget
- Zero-based budget (Correct answer)
- Rolling budget
- Flexible budget
Correct answer: Zero-based budget
Zero-based budgeting requires each expense to be justified from scratch each budget period, regardless of prior year spending.
Question 5: A petty cash fund is established with $200. After several small purchases, the fund holds $47 in cash and $153 in receipts. The fund is:
- Over by $153
- Short by $153
- In balance (Correct answer)
- Over by $47
Correct answer: In balance
A petty cash fund is in balance when the remaining cash plus all receipts equals the original fund amount ($47 + $153 = $200).
Question 6: Which of the following is the correct formula for calculating a budget variance?
- Actual amount ÷ Budgeted amount
- Budgeted amount × Actual amount
- Actual amount − Budgeted amount (Correct answer)
- Budgeted amount ÷ Actual amount
Correct answer: Actual amount − Budgeted amount
Budget variance is calculated by subtracting the budgeted amount from the actual amount; a positive result is unfavorable (overspent) for expenses.
CPS CPS Financial Management and Budgeting 1
Which financial document summarizes a company's revenues, expenses, and net income over a specific period?