ACCA Performance Management (F5) Certification Practice Exam

What is the primary purpose of a budget?

1. To summarize past financial activities

2. To ensure compliance with regulations

3. To provide a quantitative plan for a specific time period

4. To set organizational culture

The correct answer is: To provide a quantitative plan for a specific time period

The primary purpose of a budget is to provide a quantitative plan for a specific time period. Budgets serve as a financial roadmap that outlines an organization’s expected revenues and expenditures over a defined period, typically a fiscal year. By establishing clear financial objectives and targets, a budget helps guide decision-making and resource allocation. It allows managers to plan for future activities, assess the feasibility of proposals, and set financial goals to support strategic initiatives. When organizations create budgets, they are essentially forecasting their expected financial performance and comparing it to their available resources. This quantitative approach enables businesses to prioritize spending, allocate resources efficiently, and monitor performance against their financial goals. Effective budgeting can assist in identifying potential financial shortfalls and opportunities for growth, ultimately contributing to informed strategic planning and improved overall management. Other options, while relevant in certain contexts, do not reflect the main function of a budget. Summarizing past financial activities, ensuring compliance with regulations, and setting organizational culture are all important considerations for an organization, but they are not the primary aim of the budgeting process.