CPS CPS Financial Management & Budgeting 2 — Questions and Answers
Question 1: Which of the following is an example of a fixed expense for a business?
- Office supply purchases
- Monthly building lease payment (Correct answer)
- Overtime wages
- Client entertainment costs
Correct answer: Monthly building lease payment
A fixed expense remains constant regardless of business activity level, such as a lease or insurance premium paid each month.
Question 2: What does the term 'fiscal year' mean in a business context?
- A year in which the company earned a profit
- A 12-month accounting period that may or may not align with the calendar year (Correct answer)
- The year a business was incorporated
- A period of exactly 52 business weeks
Correct answer: A 12-month accounting period that may or may not align with the calendar year
A fiscal year is any 12-month period used for financial reporting and budgeting purposes; it doesn't have to run January–December.
Question 3: When processing expense reports, what supporting document is most important for reimbursement?
- A handwritten note describing the purchase
- An original receipt showing itemized costs (Correct answer)
- An approval email from any colleague
- A credit card statement with a lump total
Correct answer: An original receipt showing itemized costs
Original itemized receipts are the primary substantiation required for expense reimbursement under most corporate and IRS policies.
Question 4: Which financial ratio measures a company's ability to pay short-term obligations with its most liquid assets?
- Debt-to-equity ratio
- Current ratio (Correct answer)
- Return on investment
- Gross margin
Correct answer: Current ratio
The current ratio (current assets ÷ current liabilities) measures liquidity and a company's ability to cover short-term debts.
Question 5: A secretary asked to prepare a purchase order (PO) should include all of the following EXCEPT:
- Vendor name and address
- Description and quantity of items
- Employee personal bank account (Correct answer)
- Unit price and total cost
Correct answer: Employee personal bank account
A purchase order includes vendor details, item descriptions, quantities, and pricing — never the employee's personal financial information.
Question 6: What does 'net 30' mean on a vendor invoice?
- A 30% discount is applied to the total
- Payment is due within 30 days of the invoice date (Correct answer)
- The order will ship in 30 days
- A 30-day return policy applies
Correct answer: Payment is due within 30 days of the invoice date
Net 30 is a payment term meaning the full invoice amount is due within 30 calendar days of the invoice date.
CPS CPS Financial Management & Budgeting 2
Which of the following is an example of a fixed expense for a business?