Accounting Question Thread

[pooshwaltzer]

1. Budget enables planning and forecast; part of good business practice and acumen.
2. Variance reporting and commentary enable the identification of deviations between actual and expected figures. It is a measure of forecast accuracy cum predictive precision. Variations help decision makers to discover and address problem areas.
3. Budgeting involves: Taking historical averages, developing trends and hashing out indicative patterns, projecting said trends to future periods, review assumptions.
4. Anticipated cash deficits from net negative cashflows can be addressed via: shifting supplier payments to trade credit accrual basis, offering incentives for customers to pay cash vs. incur debt, make equity contributions to re-capitalize liquidity position, offer existing debtors with outstanding net obligations discounts to pay early in current period and, finally, sell assets that are non-performing.
5. The more frequently budgeted CF statements are prepared, they more informative and RELEVANT these figure estimates become in the process of cash account reconciliation.
6. As above. Timeliness, relevancy and reliability of reported estimates directly proportional to frequency of budgetary activity.
7. The budgeted CF statement is used to ensure that sufficient cash resides on hand within the business to meet all expected pending cash payment obligations in the forthcoming period.
8. Replace "invested" with "investigated" (assuming typo). Unfavourable variances significant and MATERIAL in nature should be investigated to identify underlying cause. Likewise, substantially favourable variances should also be studied to learn from where the business has succeeded.
9. Budgeted CF statements should be further segregated into OPERATING, INVESTING and FINANCING activities in order to purvey enhanced detail as to the exact nature of discrete cash flow events.
10. Budgeting by definition requires the imposition of managerial assumptions and qualifying estimates which would probably deviate to varying extents from actual reported figures in the subsequent period whence realized. Therefore it trades reliability (cost) in order to gain relevance (benefit).
11. Conservatism - expenses should typically be somewhat overstated and revenue/income understated to ensure that the process of budgeting does not proffer an overtly optimistic outlook when in actuality, the reality of the business case is far less auspicious. Prudence is to err on the side of caution.
12. Annual budgets are more informative, relevant and actionable than longer term estimates. However, extending the length of the budget duration and time frame would reduce the onus of cost associated with the undertaking.

[_avO]

Yup you're right it was a typo (Q8) . Should have been investigated as opposed to invested

[eeps]

1. Budget enables planning and forecast; part of good business practice and acumen.
2. Variance reporting and commentary enable the identification of deviations between actual and expected figures. It is a measure of forecast accuracy cum predictive precision. Variations help decision makers to discover and address problem areas.
3. Budgeting involves: Taking historical averages, developing trends and hashing out indicative patterns, projecting said trends to future periods, review assumptions.
4. Anticipated cash deficits from net negative cashflows can be addressed via: shifting supplier payments to trade credit accrual basis, offering incentives for customers to pay cash vs. incur debt, make equity contributions to re-capitalize liquidity position, offer existing debtors with outstanding net obligations discounts to pay early in current period and, finally, sell assets that are non-performing.
5. The more frequently budgeted CF statements are prepared, they more informative and RELEVANT these figure estimates become in the process of cash account reconciliation.
6. As above. Timeliness, relevancy and reliability of reported estimates directly proportional to frequency of budgetary activity.
7. The budgeted CF statement is used to ensure that sufficient cash resides on hand within the business to meet all expected pending cash payment obligations in the forthcoming period.
8. Replace "invested" with "investigated" (assuming typo). Unfavourable variances significant and MATERIAL in nature should be investigated to identify underlying cause. Likewise, substantially favourable variances should also be studied to learn from where the business has succeeded.
9. Budgeted CF statements should be further segregated into OPERATING, INVESTING and FINANCING activities in order to purvey enhanced detail as to the exact nature of discrete cash flow events.
10. Budgeting by definition requires the imposition of managerial assumptions and qualifying estimates which would probably deviate to varying extents from actual reported figures in the subsequent period whence realized. Therefore it trades reliability (cost) in order to gain relevance (benefit).
11. Conservatism - expenses should typically be somewhat overstated and revenue/income understated to ensure that the process of budgeting does not proffer an overtly optimistic outlook when in actuality, the reality of the business case is far less auspicious. Prudence is to err on the side of caution.
12. Annual budgets are more informative, relevant and actionable than longer term estimates. However, extending the length of the budget duration and time frame would reduce the onus of cost associated with the undertaking.

LOL. Thanks AGAIN!

[eeps]

Question:

IN relation to Ex. 18.5 (d.) of the Cambridge Textbook.

Explain why an improvement in expense control could still see total expenses increase.

Thanks.

(a .jpg of the question is attached.)

[pooshwaltzer]

Improved expense control measures (cost management) would decrease the percentage rate of expense as a ratio against either assets or sales. Total expenses however may still increase in line with overall increases in underlying core business activities and sales volumes. Therefore relative ratio measures of expenditure are more informative as a means of deriving effectiveness than absolute dollar figures.

[eeps]

Improved expense control measures (cost management) would decrease the percentage rate of expense as a ratio against either assets or sales. Total expenses however may still increase in line with overall increases in underlying core business activities and sales volumes. Therefore relative ratio measures of expenditure are more informative as a means of deriving effectiveness than absolute dollar figures.

LOL. Thanks!

[eeps]

Question:

Ex. 18.8 (d.) of the Cambridge Textbook.

Explain how the owner's plan of action could lead to an:

• improvement in the Net Profit Rate.
• worsening in the Net Profit Rate.

*THE owner's plan of action was to... increase spending on advertising.*

(a .jpg of the question has been attached.)

Thanks.

(woo! 300 posts and counting...)

[Yitzi_K]

Well, a worsening in the Net Profit rate is obvious, as with increased advertising he's increased his expenses.

However, the Net Profit ratio would increase if the added advertising caused an even bigger increase in sales.

[_avO]

what if sales was marked up from the cost

say 100x is the cost
and 200x is the revenue

sell 10 items = 1000 profit = 50% NPR
sell 20 items as a result of advertising = 2000 profit = 50% NPR o.0 this is messed up

nvm this relates to GPR :/

[_avO]

Oh woops, forgot about the fixed costs (wages, rent etc).. reminds me of Further maths and the cost volume profit analysis

[Yitzi_K]

Yeh that's why it says 'Explain why the owner's actions will not affect the Gross Profit Ratio'

[_avO]

Oh true that, nice observations

[eeps]

Well, a worsening in the Net Profit rate is obvious, as with increased advertising he's increased his expenses.

However, the Net Profit ratio would increase if the added advertising caused an even bigger increase in sales.

Thanks!

[eeps]

Question:

Explain one advantage of preparing budgets more than once a year.

I KNOW it's a relatively easy THEORY question... but... I think it's to identify problem areas and take corrective action to fix it. HAS anyone else got more detail/better responses. could you say that it increases the accuracy of the budgets...

Thanks.

LOL. I get stuck on the easy THEORY questions... but I seem to do better on the harder ones... :\

[_avO]

that question is generally 2 marks, 1 for each key point "identify problem area" and "corrective action" so you won't need to add onto it, except I usually write a lot for my SAC ones (usually more then the box given) since they dont matter