According to best practices in financial accounting, how often should you prepare a budget to ensure it provides useful information?

• A. Whenever there is a major expense
• B. Only when profits decline
• C. Only once at the start of a business
• D. Every single period (e.g., month or year)

Answer: (D)

Verified step by step guidance

1. Understand the purpose of a budget: A budget is a financial plan that helps businesses allocate resources, forecast revenues and expenses, and monitor financial performance over time.
2. Recognize the importance of periodic budgeting: Preparing a budget every single period (e.g., month or year) ensures that the business can adapt to changing circumstances, track progress, and make informed decisions.
3. Avoid reactive budgeting practices: Preparing a budget only during major expenses or when profits decline is not proactive and may lead to financial mismanagement.
4. Consider the lifecycle of the business: While a budget may be prepared at the start of a business, it must be updated regularly to reflect current financial conditions and goals.
5. Adopt best practices: To ensure the budget provides useful information, establish a routine for preparing and reviewing budgets on a consistent basis, such as monthly or annually, depending on the business needs.