 In this presentation, we'll take a look at multiple choice questions related to budgeting, going through the questions, and then practicing test-taking skills with them. First question, reports costs of merchandise to be purchased, A, merchandise purchases budget, B, inventory budget, C, sales budget, D, cash disbursement budget, E, capital expenditures budget. Let's go through this again using the process of elimination. Reports costs of merchandise to be purchased, A, merchandise purchases budget. Sounds awfully reasonable. I'll keep that one for now. B says the inventory budget. That sounds kind of reasonable, like, because we're purchasing stuff, merchandise inventory. So I'll keep that. C says sales budget, and that would be us selling stuff, not purchasing stuff, so I don't think that's it. D says cash disbursement budget, and we are kind of dispersing of cash possibly, or accounts payables going up on one or the other. So I'll keep that for now. And E says capital expenditures budget. And that has to do with us making expenditures for property, plant, and equipment, not merchandise or inventory. So I don't think it's going to be E. So let's go through this again. Reports costs of merchandise to be purchased, either A, merchandise purchases budget, B, inventory budget, D, cash disbursement budget. Of those three, I don't think it's D. I would think it'd be A and B, and A looks almost to exactly like the question for it to be actually the one, but it is the one. So we typically call, even though these two sound like kind of the same thing, inventory budget. There is no inventory budget, typically. We call it the merchandise purchases budget. So the A is going to be the final answer. Reports costs of merchandise to be purchased, A, merchandise purchases budget. Next question. Which is not usually considered in preparing a sales budget, A, business capacity, B, future economic and market conditions, C, prediction of unit sales, D, the capital expenditures budget, and E, advertising expenses. Let's go through this again, using the process of elimination, which is not usually considered in preparing a sales budget. So we're making the sales budget. That's like at the top of the budgeting process. This is one of the first things that we're going to start you thinking of the order of operations, we're making the sales budget so that we can then make the other type of budgets typically first. So this is the first thing we want to get done. Obviously we want sales to be as high as possible. A is the business capacity. So that sounds, you know, capacity of the business to make the sales budget. How much can we sell? That sounds reasonable. B says future economic and market conditions. That's going to be something we will consider. We're going to think of last year's numbers and then consider future economic and market conditions and consider what our sales will be then in the future based on that. And then C says prediction of unit sales, again, that's what we're doing. We need to predict the units that are going to be sailed as part of our, you know, kind of our sales production or top line on the income statement timing account. E says the capital expenditures budget. Now that's something that we do later on. So typically we need to know what our sales are before we do the capital expenditures budget, not really know the capital expenditures budget to do the sales, right? We do the sales before the capital expense. So I would think that might be the one. And then E says advertising expenses. So advertising expenses is a little bit tricky because that's going to be a type of expense. But notice, of course, the advertising is going to be related to what we think our sales are going to be. So when we project what sales and how many units we're going to sell in the future, we might have to consider advertising in that projection because the advertising could affect that our sales amount. So of those, I would think that D would be our final answer. Final answer, which is not usually considered in preparing a sales budget D, the capital expenditures budget. Next question, which is not considered when preparing the cash budget, a cash receipts from customers, B cash payments for merchandise, D depreciation expense, D cash receipts from loan, E cash payments from capital expenditures. Let's go through this again using the process of elimination, which is not considered when preparing the cash budget. Now notice, I mean, just looking at all these, we can see that one word is the same and it happens to be the starting word of each of these cash receipts cash payments cash receipts cash payments. That's what a cash budget does. We have cash receipts and cash so many times cash is being received or paid. I mean it could say cash received dot dot dot cash paid dot dot dot and it would probably have to be in the cash budget because the cash is involved. The one that doesn't have cash depreciation expense does reduce the income statement but it's not a cash related item and therefore it won't be on a cash basis. It will reduce the income statement. It will reduce net income. It will not reduce the cash budget. See then final answer, which is not considered when preparing the cash budget, see depreciation expense.