 In this presentation, we will take a look at multiple choice questions related to budgeting, going through those questions, and then practicing test-taking skills with them. First, a word from our sponsor. Yeah, actually, we're sponsoring ourselves on this one because apparently the merchandisers, they don't want to be seen with us. But that's okay, whatever, because our merchandise is better than their stupid stuff anyways. Like our CPA six-pack shirts, a must-have for any pool or beach time, mixing money with muscle, always sure to attract attention. Yeah, even if you're not a CPA, you need this shirt, so you can like pull in that iconic CPA six-pack stomach muscle vibe, man. You know, that CPA six-pack everyone envisions in their mind when they think CPA. Yeah, as a CPA, I actually and unusually don't have tremendous abs. However, I was blessed with a whole lot of belly hair. Yeah, allowing me to sculpt the hair into a nice CPA six-pack-like shape, which is highly attractive. Yeah, maybe the shirt will help you generate some belly hair too. And if it does, make sure to let me know. Maybe I'll try wearing it on my head. And yes, I know six-pack isn't spelled right, but three letters is more efficient than four, so I trimmed it down a bit, okay? It's an improvement. If you would like a commercial-free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. First question, which is false about budgeting? A, budgeting helps planning and control. B, budgeting helps with performance evaluation. C, budgets help coordinate the organization. D, budgeting allows managers to think ahead and create future plans. E, the master budget is created by top management only. Let's go through this again and use the process of elimination, which is false about budgeting. A, budgeting helps planning and control. I would think that's the case. We're budgeting to the future, probably to help us to plan and then set internal controls to help run those plans, set up a system for it. B, says budgets helps with performance evaluation. Now maybe we might think, I don't know quite yet, the budgeting process will help us with future budget performance as we compare, but possibly not during the budgeting process. So I'll keep it for now. C, says budgets help coordinate the organization. And I think that's pretty clearly true because we're trying to get a plan for the future. We're trying to get everyone together and coordinate to people. And then D, says budgeting allows managers to think ahead and create future plans. That's kind of the purpose here. We're thinking ahead and creating future plans. I would think that seems reasonable. And then E, says the master budget is created by top management only. And so I'll keep that for now because you would think, of course, top management, it's going to be involved in the budget, obviously, because we're not talking about a democracy here. This is a company and the top management is going to be involved in an important process like budgeting. So I'll keep that for now. Let's go through it again. Which is false about budgeting? Either B, budgets helps with performance evaluation, or E, the master budget is created by top management only. Which of those is false? Now note that the key word here on E is again, this only word only. So that means there's no situation ever or only the only management is involved. So that would mean that no one else is involved. And again, any of those absolute type of words we want to be careful with, and any type of word within a budgeting or manageral accounting test question, which basically says that this one isolated group is involved to take care of this basic thing. And unless we're talking about separation of duties kind of for internal controls, is not is not typically going to be a good thing because obviously communication is going to be one of the major goals that we have. So the master budget is created by top management only. No, no, it's going to be created by the whole company. Because of course, the idea is we're going to have a bottom up type of budgeting process, especially if we have a large company, because the departments are the ones that are going to have to actually give the data, they're the ones that have the data up and feed it up to top management. So it's hopefully it's probably going to be more of a bottom up type of scenario. So and again, anytime you see a word only in a situation, any absolute term, you want to be careful of that. So I'm going to say E is going to be the answer here that doesn't apply B says, budgets helps with performance evaluations, it does in the future. So final answer, which is false about budgeting D, the master budget is created by top management only. Next question, a budget is a formal statement of the company's future plans expressed in monetary terms, be a control device, C, informal statement of company's future plans expressed in monetary terms, D, unnecessary, E, based on prior year numbers. Let's go through this again using the process of elimination. A budget is either a formal statement of company's future plans expressed in monetary terms. That sounds like a pretty good definition. I'm going to keep that for now. B, a control device. I kind of could be, I guess, I'll keep that for now. C says, informal statement of company's future plans expressed in monetary terms. Well, now A and C look very similar with the difference of formal versus informal. So I'll keep that one for now. D says, unnecessary, that seems kind of not nonsensical. And E says, based on prior year numbers. That might seem reasonable. You would say, based on prior year's numbers. Let's go through it again. A budget is either A, formal statement of the company's future plans expressed in monetary terms, B, a control device, C, information statement of the company's future plans expressed in monetary terms, and E, based in prior year's numbers. Now, of all these, A and C are related and only have one word that's different. A lot of times when that's the case, it might be that one of those are the answers and we're looking for that one word difference. So I'm going to assume that's the case here and I'm going to eliminate the other two. So it's a control device. It kind of sets limits to planning, but I wouldn't call it like a control, like it's just a control item. And then E says, based on prior year numbers. Now, that's going to be a starting point typically, but whenever a book question asks asked about future budgeting and acts like it's only based on the past, then even though in real life, we know that it's going to start off with the past numbers that we're going to budget and project out in the future. We have to take future events into consideration as well. So it's not only going to be past numbers typically. And it was time you see an answer that says, the future budget is always going to be based strictly on what happened in the past. No, we're going to take the past, then we're going to project on what we think is going to happen in the environment in the future, things like in the economy and whatnot, and then we'll adjust our budget. So between A and C, is it formal or informal? And the budget's going to be formal is because that this is a formal thing that we're going to be putting together. We're going to go and where is a formal plan that we're going to be able to provide to everybody and show it in a formal fashion. So final answer, a budget is a formal statement of company's future plans expressed in monetary terms.