2RQ - Horngren'S Financial And Managerial Accounting

Question

Describe the capital budgeting process.

Step-by-Step Solution

Answer

The capital budgeting process is linked with the allocation of funds into the capital assets for the growth of the business.

Step 1: Meaning of Budgeting

Budgeting is the process of estimating the future expected revenues and expenses associated with a business entity. Budgets are prepared separately for all the segments of a business and are used to determine growth.

Step 2: Capital budgeting process

The capital budgeting process refers to the way of organizing and allocating the funds into the capital assets that result in good returns. 

In addition, the capital budgeting process passes through four major stages:

1. Initially, this process requires the development of strategies.
2. Appropriate planning must be done in order to allocate the funds.
3. Implementation of the strategies and planning.
4. Controlling the variances in the outcomes.