QuestionAugust 12, 2025

Which of the following statements is true of the capital expenditures budget? A. It must be completed after the budgeted income statement is prepared. B. It includes the sales budget. C. It must be completed before the cash budget is prepared. D. It is a part of the financial budget.

Which of the following statements is true of the capital expenditures budget? A. It must be completed after the budgeted income statement is prepared. B. It includes the sales budget. C. It must be completed before the cash budget is prepared. D. It is a part of the financial budget.
Which of the following statements is true of the capital expenditures budget? A. It must be completed after the budgeted income statement is prepared. B. It includes the sales budget. C. It must be completed before the cash budget is prepared. D. It is a part of the financial budget.

Solution
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Answer

C. It must be completed before the cash budget is prepared. Explanation 1. Identify the purpose of the capital expenditures budget The capital expenditures budget outlines planned investments in long-term assets and is crucial for planning cash flows. 2. Determine the sequence of budget preparation The capital expenditures budget must be prepared before the cash budget to ensure that all planned capital outlays are accounted for in cash flow projections. 3. Analyze each option A. Incorrect - The capital expenditures budget is not dependent on the budgeted income statement. B. Incorrect - The sales budget is separate from the capital expenditures budget. C. Correct - It must be completed before the cash budget. D. Incorrect - While related, it is not a direct part of the financial budget but influences it.

Explanation

1. Identify the purpose of the capital expenditures budget<br /> The capital expenditures budget outlines planned investments in long-term assets and is crucial for planning cash flows.<br /><br />2. Determine the sequence of budget preparation<br /> The capital expenditures budget must be prepared before the cash budget to ensure that all planned capital outlays are accounted for in cash flow projections.<br /><br />3. Analyze each option<br /> A. Incorrect - The capital expenditures budget is not dependent on the budgeted income statement.<br /> B. Incorrect - The sales budget is separate from the capital expenditures budget.<br /> C. Correct - It must be completed before the cash budget.<br /> D. Incorrect - While related, it is not a direct part of the financial budget but influences it.
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