International Association of Accessibility Professionals (IAAP) Certified Administrative Professional (CAP) Practice Exam

How is a balanced budget defined?

1. When total revenue equals total expenses.

2. When liabilities exceed assets.

3. When cash flow is positive.

4. When budget goals are exceeded.

The correct answer is: When total revenue equals total expenses.

A balanced budget is defined as a situation in which total revenue equals total expenses. This means that the income generated from various sources, such as taxes, fees, and other revenues, is exactly matched by the expenditures of the organization or government. A balanced budget is a crucial aspect of financial management as it indicates fiscal responsibility and sustainability, ensuring that the entity does not operate at a deficit or accumulate unmanageable debt. This concept is essential in both public and private sectors because it ensures that organizations can cover their operational costs without borrowing, which contributes to financial stability and confidence among stakeholders. When total expenses exceed revenue, it typically leads to debt accumulation, while having excess revenue can indicate potential inefficiencies or areas where funds could be reinvested for growth. Other options discuss financial scenarios that don’t directly relate to the definition of a balanced budget. Liabilities exceeding assets indicates a negative net worth but does not define the balance of a budget. Positive cash flow refers to cash inflows surpassing outflows, but it does not guarantee that total revenues match total expenses. Budget goals being exceeded refers to financial performance but does not pertain to the concept of balance between revenues and expenses.