What is the typical purpose of a capital budget?

• A. Fund one large expenditure such as a fire house.
• B. Cover day-to-day operating expenses.
• C. Fund staff training programs.
• D. Purchase office supplies.

Answer: (A)

A capital budget is used to plan for large, long-lasting investments in fixed assets. Funding a fire house fits this purpose because it represents a major, durable asset that will serve the organization for many years and requires a substantial up-front investment. This kind of project is evaluated and funded through capital budgeting processes, often with long-term financing and consideration of multi-year benefits.

Day-to-day operating expenses are covered by the operating budget because they are ongoing costs necessary to run the day-to-day activities. Staff training programs are typically considered operating expenses unless they are part of a broader asset improvement, and purchasing office supplies is a routine, short-term expense rather than a long-term asset.