What is the primary purpose of a budget in financial accounting?

• A. To record only historical financial transactions
• B. To plan and control an organization's financial resources
• C. To calculate the depreciation expense for fixed assets
• D. To determine the market value of company assets

Answer: (B)

Verified step by step guidance

1. Understand the concept of a budget in financial accounting: A budget is a financial plan that outlines an organization's expected revenues, expenses, and resource allocations over a specific period.
2. Recognize the primary purpose of a budget: It is used to plan and control an organization's financial resources, ensuring that the organization operates efficiently and achieves its financial goals.
3. Differentiate the purpose of a budget from other financial accounting tasks: Unlike recording historical transactions, calculating depreciation, or determining market value, a budget is forward-looking and focuses on future financial planning and resource management.
4. Consider how budgets help in decision-making: They provide a framework for evaluating financial performance, identifying variances, and making adjustments to meet organizational objectives.
5. Conclude that the correct answer is 'To plan and control an organization's financial resources,' as this aligns with the fundamental role of a budget in financial accounting.