Obj. 5.02 Part A Review

The most important reason for budgeting is to

• plan for retirement.

• save for a rainy day.

• accomplish a financial goal.

• increase personal wealth.

The definition of a budget is

• an estimate of income and expense for a specific period.

• a plan for limiting your personal spending.

• a method for evaluating a manager’s performance.

• the key to a business’s success.

Budgets can be described in terms of

• money, maps, and management.

• account books, bills, and bankruptcy.

• desires, debt, and discipline.

• savings, sales, and success.

In budgeting, utility bills, salaries, advertising, equipment purchases, taxes, and loans are examples of

• business income.

• financial goals.

• spending controls.

• business expense.

By regularly reviewing their budgets, businesses are able to determine if they are

• paying interest to customers.

• following their financial plans.

• offering loans to employees.

• receiving discounts from vendors.

When a business owner or manager uses a budget, s/he

• makes more informed decisions.

• demonstrates leadership.

• has to try to make it interesting.

• can more accurately evaluate employees.

What is the relationship between a business’s goals and its budget?

• Goals state the big picture and are unrelated to a detailed budget.

• Goals are established after the budget so that they are realistic.

• Budgets reflect real business activity while goals are usually unrealistic.

• Budgets translate a company’s goals into actual means for accomplishing them.

What is the benefit of having written records of financial transactions?

• Expenses are reduced, and income is increased.

• Accounting is simplified and less detailed.

• Information is accurate, accessible, and meaningful.

• Investments are increased, and profit is reinvested.

A budget helps a business evaluate long-term performance by

• providing benchmarks of past performance.

• creating a trail of management decisions.

• comparing what is currently budgeted to what is actually being earned and spent.

• providing details of all related activities.

The difference between a budgeted amount and an actual amount is called

• the balance sheet.

• a variance.

• a safety net.

• financial evaluation.