Question

Which of the following statements is true about the budgeting process?

	A.	Budgets are primarily used for planning, but not for control.
	B.	Budgets are created prior to the start of an accounting period by management, front line employees are not asked to provide input.
	C.	Budgeting is perhaps the most widely used management tool employed by private companies, but are generally not used much by governments.
	D.	Budgets are required for external accounting reporting and must follow IFRS accounting formatting standards.
	E.	New budgets can be based on a company’s prior year’s figures, or be started from zero.

Answer 1

Answer:

Correct answer is:

E. New budgets can be based on a company’s prior year’s figures, or be started from zero.

Explanation:

To prepare new budget, previous year's figure can be taken as baseline with expected changes/growths factored in. Another method for budgeting can be Zero based budgeting.

Hence statement E is correct.

Statement A is incorrect since budgets are used for planning, communicating, controlling and evaluating performance.

Statement B is incorrect since budgeting process involves all relevant stakeholders and their inputs are considered for better buy in and implementation.

Statement C is incorrect since governments also uses budgeting and approval process.

Statement D is incorrect since budgets are neither required for external reporting nor the budgets need to comply IFRS.