Budgeting is one of 9 topics in the Grade 12 Accounting CAPS syllabus, covered across 3 lessons on Study Vault. Below are real practice questions from this topic with full worked answers.
Sample practice questions
Easy
1. A budget is best described as:
A detailed financial plan estimating expected income, expenses and cash flows for a future period
A record of transactions that have already occurred
A tax return submitted to SARS
A summary of a company's share price history
Answer: A detailed financial plan estimating expected income, expenses and cash flows for a future period — A budget is a forward-looking financial plan, prepared before the period it covers, unlike the financial statements, which report on a period that has already occurred.
Easy
2. When actual expenses turn out lower than budgeted expenses, this is generally described as:
A favourable variance
An unfavourable variance
A cash flow statement item
A solvency ratio
Answer: A favourable variance — Actual expenses being lower than budgeted is good news for the business (more profit than expected), so it is classified as a favourable variance.
Medium
3. Why does budgeting help a business anticipate periods when cash may be tight?
Because projecting cash flows in advance reveals future shortfalls, allowing financing to be arranged before a crisis occurs
Because budgets always guarantee sufficient cash regardless of circumstances
Because budgeting eliminates the need to ever borrow money
Because budgets are only prepared after a cash shortage has already occurred
Answer: Because projecting cash flows in advance reveals future shortfalls, allowing financing to be arranged before a crisis occurs — By forecasting cash inflows and outflows ahead of time, a business can identify likely shortfalls in specific future months and arrange financing (e.g. a short-term loan or overdraft) proactively, rather than being caught off guard.
