What are "capital expenditures" used for in a budget plan?

Capital expenditures refer to the funds used by an organization to acquire, upgrade, and maintain physical assets such as property, buildings, and equipment. These expenditures are critical for long-term investment and are typically substantial in nature, as they often involve purchasing or improving fixed assets that will provide value over an extended period.

When formulating a budget plan, distinguishing capital expenditures from operational costs is essential, as capital expenditures contribute to the future growth and capacity of the organization. This contrasts with daily operational costs, which are associated with routine business operations, employee training programs aimed at enhancing workforce skills, and public relations and marketing efforts that focus on promoting the organization to consumers. By committing resources to capital expenditures, an organization lays the foundation for future operational efficiency and potential expansion.