Capital expenditure budget

Definition

A capital expenditure budget outlines the planned spending on long-term assets such as equipment and facilities. It focuses on investments that will benefit the organization for multiple years.

5 Must Know Facts For Your Next Test

1. Capital expenditure budgets typically include costs for acquiring, upgrading, or maintaining physical assets.
2. These budgets are crucial for long-term planning and aligning investments with strategic goals.
3. Approval of a capital expenditure budget often requires higher-level management or board consent due to the significant financial impact.
4. Depreciation of capital assets is accounted for in financial statements based on the expenditures outlined in this budget.
5. The budgeting process includes forecasting future needs, cost estimation, and prioritizing projects based on their expected return on investment.

Review Questions

• What types of expenses are included in a capital expenditure budget?
• Why is it important for a business to have a capital expenditure budget?
• How does a capital expenditure budget impact an organization's long-term financial planning?

Related terms

Operating Budget: A financial plan that covers day-to-day expenses such as salaries, utilities, and rent.

Depreciation: The allocation of the cost of a tangible asset over its useful life.

Return on Investment (ROI): A measure used to evaluate the efficiency or profitability of an investment.