Budgeting
What is the main purpose of creating a budget for a company?
To plan and manage the company’s income and expenses.
Which financial statement shows a company’s profits and losses over a specific period?
The Income Statement (or Profit and Loss Statement).
What is the main goal of risk management in a business?
To identify, assess, and minimize potential risks to the company’s financial health and operations.
What is a fiduciary duty?
The legal responsibility to act in the best interest of another party, typically in the context of managing financial assets.
What financial document helps track a company’s projected income and expenses for a specific period?
A budget or budget report.
Which financial statement shows the financial position of a company at a specific point in time, detailing its assets, liabilities, and equity?
The Balance Sheet.
What type of insurance can a business purchase to protect itself against financial losses from natural disasters?
Property insurance.
Which individuals in a company are most likely to have fiduciary duties to shareholders?
The board of directors and senior executives.
What is the term for comparing a company’s actual financial performance against its budget?
Budget variance analysis.
What type of financial statement is used to track a company’s cash inflows and outflows?
The Cash Flow Statement.
What is the term for a process in which a company identifies potential risks and creates a plan to deal with them?
Risk assessment.
What does "duty of care" refer to in the context of fiduciary duties?
The obligation to act with the care, diligence, and skill that a reasonably prudent person would exercise in similar circumstances.
What is a common method for businesses to reduce expenses when their budget is overspent?
Cutting non-essential costs or renegotiating contracts.
What is the primary purpose of the income statement?
What is an example of a financial risk a business might face?
Currency exchange risk or credit risk.
What is the consequence if someone fails to fulfill their fiduciary duties?
They could be held legally liable for any damages caused by their actions.
What is the term for a budget that allocates a specific amount of money to each department or project?
A departmental budget.
What does the balance sheet help investors understand about a company?
The company’s financial health, including how much it owns (assets) and owes (liabilities), and its net worth (equity).
What is the difference between risk avoidance and risk mitigation?
Risk avoidance means eliminating the risk altogether, while risk mitigation involves reducing the impact of the risk.
What is an example of a breach of fiduciary duty in a corporate setting?
A director using company funds for personal expenses or failing to disclose a conflict of interest.
How does having strong financial controls contribute to a company’s fiduciary duties?
Strong financial controls help ensure that company funds are managed responsibly, preventing misuse and ensuring compliance with fiduciary responsibilities.