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How should budget figures be understood once the period they cover has ended?
AAs audited records of what was spent
BAs projections to compare with actual results
CAs legally binding spending limits
DAs tax filings for the year just ended
Answer & Solution
Correct answer: B. As projections to compare with actual results
1. Budgets are a financial roadmap for executing the plans management has developed.
2. They are projections of what will take place, not reports of past performance.
3. Once actual performance can be measured, budgets become the benchmark it is compared against.
4. That comparison exposes strengths and weaknesses to feed into the next round of planning.
5. Treating a budget as an audited record confuses a plan with a result.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 7.11 Capital Expenditure Budget_
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