Financial Management & Budgeting Flashcards

Working capital is calculated as:

Answer: Current assets minus current liabilities

Working capital measures a company's short-term financial health by subtracting current liabilities from current assets to show liquidity available for daily operations.

What is the primary goal of financial forecasting?

Answer: To predict future financial performance and guide planning

Financial forecasting uses historical data and assumptions to project future revenues, expenses, and cash flows, enabling proactive strategic and operational planning.

What is a budget variance?

Answer: The difference between budgeted and actual financial figures

A budget variance is the difference between the budgeted amount and the actual amount spent or earned, which can be either favorable or unfavorable.

Which of the following best describes overhead costs?

Answer: Indirect business expenses not tied to a specific product or service

Overhead costs are indirect operational expenses—such as utilities, administrative salaries, and facility maintenance—that support the business but are not tied to specific outputs.

What is the main purpose of a financial audit?

Answer: To independently verify that financial statements are accurate and compliant

A financial audit is an independent examination of an organization's financial records to verify their accuracy, completeness, and compliance with accounting standards.

A fiscal year is best defined as:

Answer: Any 12-month period used for financial reporting and tax purposes

A fiscal year is any consecutive 12-month period a company or government uses for budgeting, accounting, and financial reporting, which may or may not align with the calendar year.