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Capital Budget

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Definition:

A capital budget (capital assets budget) includes planned outlays for capital assets with long expected lives and which are designed to produce income or support operations. These usually exceed cost minimums as dictated by accounting and/or tax rules, and include, but are not limited to:

  • Land
  • Buildings
  • Machinery
  • Office Equipment
  • Furniture & Fixtures
  • Vehicles
  • Investments in Other Companies

Also according to accounting and tax rules, and varying by type of asset, the expenditures made on capital items such as those listed above normally are spread over a number of years for the purposes of computing net income.

Quantitative methods used to evaluate projects for possible funding out of a capital budget include NPV and IRR calculations.

Examples:
The company's capital budget has set aside $1 million for the purchase of new computer hardware this year.
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