Future Business Leaders of America (FBLA) Agribusiness Practice Test

What is the purpose of a capital expenditure budget?

1. To report on past capital investments

2. To detail expected cash inflows

3. To outline the allocation of funds for significant purchases

4. To summarize daily cash transactions

The correct answer is: To outline the allocation of funds for significant purchases

A capital expenditure budget serves a crucial role in financial planning by outlining the allocation of funds for significant purchases that are necessary for a business's operational capacity and long-term growth. This budget focuses on investments in physical assets such as machinery, real estate, or technology, which generally require substantial financial commitment and have a long-term impact on the company's performance. By detailing these expected expenditures, the capital expenditure budget helps management make informed decisions about which projects should be prioritized based on their potential return on investment and alignment with the company’s strategic goals. It ensures that adequate resources are allocated for these essential assets, allowing for better project planning and overall financial stability. The other options provide information about different types of financial documents or reports. Reporting on past capital investments would focus on historical data rather than future allocations. Detailing expected cash inflows typically pertains to cash flow budgeting, which tracks the money coming into and going out of the business. Summarizing daily cash transactions relates to operational cash management, which is distinct from the planning and decision-making required for long-term capital investments.