International Baccalaureate (IB) Practice Exam

Which statement about budgeting is false?

1. A budget is meant to summarize the saving and spending that has taken place over the past year.

2. The cash flow statement is reflective of what has already taken place.

3. A budget is a written plan for saving and spending.

4. A cash flow statement summarizes all of the income and outgo over a certain time period.

The correct answer is: A budget is meant to summarize the saving and spending that has taken place over the past year.

The reason the statement about a budget summarizing the saving and spending that has taken place over the past year is considered false is that a budget does not reflect past activities; instead, it is a forward-looking financial plan. A budget outlines anticipated income and expenses for a future period, usually on a monthly or yearly basis, and serves as a guideline for managing finances effectively. In contrast, the cash flow statement accurately reflects past financial activity by detailing actual income and expenses that have already occurred during a specific period. The other statements are true in their context: a budget is indeed a written plan for saving and spending, and a cash flow statement summarizes the actual cash inflows and outflows over a designated time frame, making them useful tools for financial management but serving different purposes.