Question 1

The selling and administrative expense budget is prepared prior to the cash budget.

Accepted Answer

The selling and administrative expense budget is typically prepared prior to the cash budget as it provides information on expected expenses which are then included in the cash budget.

Question 2

If a company purchases its inventory on account,it need not prepare a schedule of cash payments for inventory purchases.

Accepted Answer

Even though the company purchases its inventory on account, it still needs to prepare a schedule of cash payments for inventory purchases as it will have to make payments to its creditors/ suppliers for the purchases made on account.

Question 3

How can participative budgeting improve the effectiveness of a company's budgeting process?

Accepted Answer

The answer of How can participative budgeting improve the effectiveness...

Question 4

Pro forma financial statements are prepared at the end of the year and are used to evaluate the performance of managers.

Accepted Answer

Pro forma financial statements are based on projected (budgeted)rather than historical information.

Question 5

The cash budget includes three sections: (1)operating activities, (2)investing activities,and (3)financing activities.

Accepted Answer

The cash budget is divided into three major sections: (1)a cash receipts section, (2)a cash payments section,and (3)a financing section.

Question 6

How do short-term plans differ from long-term plans?

Accepted Answer

The answer of How do short-term plans differ from long-term...

Question 7

The cash budget is not the same as the pro forma cash flow statement.

Accepted Answer

The cash budget and the pro forma cash flow statement serve different purposes. The cash budget is a detailed plan of expected receipts and payments for a specific time period, usually a month or a quarter, while the pro forma cash flow statement provides a summary of expected cash inflows and outflows for the entire budget period, which could be a year or longer.

Question 8

Depreciation expense will appear on the schedule of cash payments for selling and administrative expenses.

Accepted Answer

Depreciation expense does not affect the cash payments schedule.The cash outflow for the related fixed assets occurs when the assets are purchased,not when they are depreciated.

Question 9

In a participative budgeting system,budget information flows in both directions,from bottom to top,and from top to bottom.

Accepted Answer

Both managers and subordinates must cooperate if the participatory process is to produce an effective budget.

Question 10

The basic cash budget format is: Total cash available - Total cash disbursed = Surplus or shortage of cash +/ - Effects of financing = Ending cash.

Accepted Answer

This is the correct format of a basic cash budget.

Question 11

A schedule of cash receipts is often prepared in conjunction with the sales budget.

Accepted Answer

A schedule of cash receipts is typically used to predict and monitor the inflow of actual cash from sales, which is closely tied to the sales budget. Therefore, it is often prepared alongside the sales budget.

Question 12

Although only 20 units are on hand at the beginning of the year,World Company plans to sell 100 units during Year 2.Assuming the company desires an ending inventory of 10 units,it should plan to purchase 110 units.

Accepted Answer

Budgeted purchases of inventory purchases (in units)= Budgeted sales (in units)+ Desired ending inventory (in units)- Beginning inventory (in units)
Budgeted purchases of inventory purchases = 100 units + 20 units - 10 units = 90 units

Question 13

Interest expense is not included in the selling and administrative budget because a company cannot estimate interest expense until it prepares the cash budget and makes borrowing projections.

Accepted Answer

Interest expense is related to financing activities and cannot be accurately estimated until the cash budget and borrowing projections are completed. Therefore, it is not included in the selling and administrative budget.

Question 14

The pro forma income statement gives managers an advance estimate of a company's profitability.

Accepted Answer

Pro forma financial statements are based on projected (budgeted)rather than historical information.

Question 15

How do budget expectations influence a company's employees?

Accepted Answer

The answer of How do budget expectations influence a company's...

Question 16

The marketing department is primarily responsible for establishing the sales forecast.

Accepted Answer

The marketing department plays a key role in conducting market research and analysis to inform the sales forecast, but the ultimate responsibility for the forecast typically lies with the sales department or management team.

Question 17

If a financial statement is labeled "pro forma" this means that the statement was prepared by a professional accountant (usually the firm's auditor)following a prescribed format.

Accepted Answer

Pro forma financial statements are based on projected (budgeted)rather than historical information.
ESSAY

Question 18

If a budgeting system is designed correctly,top management will not have to get involved in the process.

Accepted Answer