Capital Budgets

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Build a capital budget

Capital budgets allow an organization to keep track of investments over a period of time. Can you determine which items belong in a capital budget, and which do not?

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Which of the following lists of items should appear in a capital budget?

Correct choice. Purchasing a new telephone system, or other business equipment, is an expense that would not be included in day-to-day business costs and should be recorded in a capital budget. Investments in property, such as office space, should be included as a capitalized expense. Costs related to capitalized expenses, such as building permits, should also be included in a capital budget.

Not the best choice. Revenue is not an investment like new equipment or property, and should not appear in a capital budget. Sales salaries are an administrative cost and do not belong in a capital budget. Cost of goods sold and related expenses, such as direct labor and overhead, belong in a Goods Sold Forecast, not a capital budget.

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