Which statement describes budgeting when cash is allocated to spending categories?

Which statement describes budgeting when cash is allocated to spending categories?

• A. Bookkeeping is the process of recording sources and amounts of money earned and spent.
• B. The envelope system allocates cash to categories.
• C. Budget variance measures differences between planned and actual expenditures.
• D. Net surplus is the leftover after deficits.

Answer: (C)

Budget variance measures differences between planned and actual expenditures. When you allocate cash to spending categories, you set a plan for how much you intend to spend in each area. After spending, you compare the actual amounts to the plan. The resulting variances show whether you’re on track and by how much you’re over or under in each category. This feedback loop—the ongoing comparison of plan versus reality—is what makes budgeting practical and adjustable over time. While bookkeeping records money and the envelope system is a method of allocating cash to categories, the statement about variance best captures how budgeting uses the difference between intention and outcome to guide decisions.

Budget variance measures differences between planned and actual expenditures. When you allocate cash to spending categories, you set a plan for how much you intend to spend in each area. After spending, you compare the actual amounts to the plan. The resulting variances show whether you’re on track and by how much you’re over or under in each category. This feedback loop—the ongoing comparison of plan versus reality—is what makes budgeting practical and adjustable over time. While bookkeeping records money and the envelope system is a method of allocating cash to categories, the statement about variance best captures how budgeting uses the difference between intention and outcome to guide decisions.