Which budgeting step directly involves planning for long-term capital expenditures?

Which budgeting step directly involves planning for long-term capital expenditures?

• A. Determine cap budget
• B. Build cash budget
• C. Develop operating budget
• D. Assess the environment

Answer: (A)

Long-term capital expenditures are planned through the capital budgeting process. The budgeting step that directly involves this planning is determining the capital budget, which outlines planned purchases of fixed assets like equipment or facilities, estimates their costs, identifies financing sources, and projects the expected returns over the asset’s life. This is different from a cash budget, which focuses on short-term liquidity and cash flow; an operating budget, which covers day-to-day revenues and expenses; and an environmental assessment, which looks at external factors. So, arranging and approving the capital budget directly tackles long-term asset investments.

Long-term capital expenditures are planned through the capital budgeting process. The budgeting step that directly involves this planning is determining the capital budget, which outlines planned purchases of fixed assets like equipment or facilities, estimates their costs, identifies financing sources, and projects the expected returns over the asset’s life. This is different from a cash budget, which focuses on short-term liquidity and cash flow; an operating budget, which covers day-to-day revenues and expenses; and an environmental assessment, which looks at external factors. So, arranging and approving the capital budget directly tackles long-term asset investments.