What is the best reason to record income at the top of a budget?

• A. It helps to prioritize discretionary spending over fixed costs.
• B. It establishes the total funds available before planning expenses.
• C. It ensures that all expenses are automatically balanced.
• D. It allows for easier calculation of tax liabilities.

Answer: (B)

Verified step by step guidance

1. Understand the purpose of recording income at the top of a budget. Income represents the total funds available for allocation to various expenses, savings, and investments.
2. Recognize that fixed costs (e.g., rent, utilities) and discretionary spending (e.g., entertainment, dining out) are planned based on the available income. Recording income first ensures that expenses are planned within the limits of available funds.
3. Consider the importance of establishing the total funds available before planning expenses. This step helps avoid overspending and ensures financial stability by aligning expenses with income.
4. Note that recording income at the top does not automatically balance expenses or calculate tax liabilities. These are separate processes that depend on detailed expense tracking and tax calculations.
5. Conclude that the best reason to record income at the top of a budget is to establish the total funds available before planning expenses, ensuring a structured and realistic financial plan.