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For this assignment, you must write 4 – 6 paragraphs about the capital budget items needed for a start up organization/company. You must answer the following questions:
Define Capital.
In budgeting for a new business, what capital budget items must be purchased?
Identify and explain at least six (6) capital budget items.
How much time do you think is needed in order to pay off the investment (capital) and gain a return.
Why is it important for the business to separate capital budgets from expense budgets?
In your own words, please post a response to the Discussion Board and comment on at least two other postings. You will be graded on the quality of your postings.
Response to the classmmate:
Response to this post below:
Note Importante : “Posted By Classmate need to be response”
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Capital is money or an asset that is owned by a person or organization that is available for the purpose of running a business or making an investment (Capital Definition / Investopedia., n.d.). This is not money used to pay bills but can be used as collateral. Capitalism is the economic system or a political system in which a country trades and private owners instead of the state or country in which the industry is located are controlled (Capitalism Definition / Investopedia., n.d.). The United States is governed by capitalism, although some people may argue that we are rapidly moving towards a socialist state.
The determining factor on what capital budget items are purchased is dependent on the type of organization (McMahon, M., 2014, September 26). Regardless of the entity there will always be the need to purchase a building. Most companies operate in some sort of structure and in most instances there is no way to omit this situation. Equipment relevant to the product or service being provided will also need to be purchased. Security equipment will also be listed as capital budget items to protect the organization’s assets. Other items to be purchased would be computers, break room equipment to include refrigerators, possibly microwaves, tables, chairs and possible bathroom fixtures depending on the nature of the building purchased.
The possible amount of time required to repay an investment to start earning a return is based on the industry the business is conducted (Shim, J., & Siegel, J., 2012). If the competition in the given industry happens to be very aggressive then a shorter time period of anywhere from two to three years could be required to make a proper investment in a new project. Also, other organizations in the industry are not going to allow another business to dominate the market. Therefore it is important that a new company not try to extend its expected return to five years or more, unless of course the particular project is something that will change the industry.
Capital budget should be separated from expense budgets for several reasons. The capital budget will not list items that are bought on a regular basis (McMahon, M., 2014, September 26). These items will be listed on the expense budget. If security upgrades are required the physical equipment will be listed on the capital budget, not the expense budget. However, the technical support or personnel responsible for the running of that equipment will be listed on the expense budget. These two budgets are required to remain separate to accurately show how the corporation is spending capital and profits.
References:
Capital Definition / Investopedia. (n.d.). Retrieved October 28, 2014, from http://www.investopedia.com/terms/c/capital.asp
Capitalism Definition / Investopedia. (n.d.). Retrieved October 28, 2014, from http://www.investopedia.com/terms/c/capitalism.asp
Shim, J., & Siegel, J. (2012). Budgeting basics and beyond (4th ed.). Hoboken, N.J.: Wiley.
McMahon, M. (2014, September 26). What is a Capital Expenditure? (O. Wallace, Ed.). Retrieved October 28, 2014, from com/what-is-a-capital-expenditure.htm”>http://www.wisegeek.com/what-is-a-capital-expenditure.htm
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