NPS Financial Management & Budgeting 1 — Questions and Answers
Question 1: What is the primary purpose of a budget in an organization?
- To track employee attendance
- To plan and control financial resources (Correct answer)
- To manage customer relationships
- To schedule project timelines
Correct answer: To plan and control financial resources
A budget serves as a financial plan that helps organizations allocate resources, set spending limits, and measure actual performance against targets.
Question 2: Which financial statement reports a company's revenues and expenses over a specific period?
- Balance sheet
- Cash flow statement
- Income statement (Correct answer)
- Statement of equity
Correct answer: Income statement
The income statement (also called the profit and loss statement) summarizes revenues, costs, and expenses to show net profit or loss over a reporting period.
Question 3: What does ROI stand for in a financial context?
- Rate of Inflation
- Return on Investment (Correct answer)
- Revenue Over Income
- Risk of Insolvency
Correct answer: Return on Investment
Return on Investment (ROI) measures the gain or loss generated on an investment relative to the amount of money invested.
Question 4: Variance analysis in budgeting is used to compare what?
- Employee performance against peers
- Actual financial results against budgeted figures (Correct answer)
- Current year revenue against prior year
- Cash inflows against cash outflows
Correct answer: Actual financial results against budgeted figures
Variance analysis identifies and explains the differences between planned budgeted amounts and actual financial results to support corrective action.
Question 5: What is a capital expenditure (CapEx)?
- A recurring monthly operating expense
- Money spent on acquiring or upgrading long-term assets (Correct answer)
- Wages paid to full-time employees
- Funds allocated for marketing campaigns
Correct answer: Money spent on acquiring or upgrading long-term assets
Capital expenditures are funds used by a company to acquire, upgrade, or maintain long-term physical assets such as equipment, buildings, or technology infrastructure.
Question 6: What is the purpose of a cash flow statement?
- To list all company assets and liabilities
- To show changes in cash and cash equivalents over a period (Correct answer)
- To summarize shareholder equity transactions
- To report annual tax obligations
Correct answer: To show changes in cash and cash equivalents over a period
The cash flow statement tracks the inflows and outflows of cash from operating, investing, and financing activities to show a company's liquidity position.
NPS Financial Management & Budgeting 1
What is the primary purpose of a budget in an organization?