Capital Expenditure Budget: Definition & Preparation

Capital Expenditure Budget: Definition & Preparation
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  • 0:03 What Is a Capital…
  • 0:50 How Is this Budget Made?
  • 1:31 Role with Other Budgets
  • 2:16 Other Uses for this Budget
  • 2:51 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

Since companies must constantly upgrade and update their equipment, it's no surprise that the capital expenditure budget is one of the most important documents that a company will produce. Learn more about it in this lesson.

What Is a Capital Expenditure Budget?

Companies are constantly looking for ways to expand their operations or make them more competitive, but doing so requires a certain amount of planning. The planning for such capital expenses, or those expenses that make a company more competitive or have great abilities, are recorded in the capital expenditure budget, which generally speaking, is a useful tool when planning how to spend money on capital expenditures, those expenses that will ultimately make the firm more money or more efficient. For a company that is looking to overhaul its equipment or make major changes to its scope of potential operations, the capital expenditure budget is one of the most important documents that can be produced. In this lesson, we'll look at how they are made, as well as how they interact with other financial documents within an organization.

How Is this Budget Made?

Before we start writing a capital expenditure budget, we first have to know what our planned capital expenses are. To do this, planners have to consider where the most pressing needs are for improvement, how advances in technology are most likely to help them, and what the needs of the business are for the coming year. Think about it like this: If you were considering upgrading your computer, you would likely only do so if you actually planned on using your computer. Otherwise, it would just be a waste of money. From there, each potential investment is listed, along with the cost and the time of year when it is to be purchased. For continuing investments, the cost is split up in accordance to how it will be spent.

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