Capital Budget is the combination of capital receipts and payments. Capital Budget also deals with incorporating the transactions in the Public Account.
Capitals receipts are represented as the loans raised by the government from the public, the government loans from the Reverse Bank and other entities via selling of the treasury bills. The loans are received from other entities and governments. The Central Government is then responsible for the loan recoveries.
Capital payments are represented by capital expenditure on assets acquisition and the investments into shares, advances, loans, etc. which are issued by the Central government.
The process of capital budgeting in business happens when potential investments and expenditures are analyzed and compared to their worth.
As an example, the capital budget of a company is merely an expenditure plan for the future. Capital Budget defines the number of assets to be acquired to serve the existing assets and improve the financial standing of the company.
Let’s say the capital budget (capital expenditure) plan is to finance a factory construction. The capital budget must view the potential profit of this endeavor. There are two methods to calculate the capital budget – calculating the net present values and the internal rate of return.