Accounting Principles II: Capital Expenditures Budget

Capital Expenditures Budget

The capital expenditures budget identifies the amount of cash a company will invest in projects and long-term assets. Although funds for expenditures may be identified and approved in total during the budget process, most companies have a separate process for approving funds for the specific items included in a capital expenditures budget. The process includes a financial evaluation to determine whether the company's return on investment targets are met and, once the targets are known to be met, a qualitative review by a top management team. Many companies include long-term assets, such as joint ventures, purchases of other companies, and purchases or leases of fixed assets, as well as new products, new markets, research and development, significant marketing programs, and information technology items in their capital expenditures budgets.