Recurrent Budget vs.

Capital Budget
by Sue-Lynn Carty

A recurrent budget consists of regular revenues and ongoing expenses. Companies may use a
recurrent budget to account for expenses that occur monthly, quarterly, semi-annually or
annually. A capital budget consists of non-recurring revenues and expenses. Companies may use
a capital budget for special projects.

Recurrent Expenses and Revenue

Recurrent budgets include recurring expenses such as wages, taxes, lease payments, insurance
and utilities. Recurring revenues can best be described as the revenues a company earns and
expects to continue to earn from its ongoing operations. For example, a paper company receives
recurring revenue from selling reams of paper. The paper company can reasonably expect to
continue to receive this recurring revenue in the future.

Recurrent Budgets

Budget makers must account for recurring revenue and expenses in its recurrent budget. If the
company finds that expenses are higher than originally estimated, it can adjust the recurrent
budget accordingly by cutting down expenses wherever possible. If revenue growth is equal to
expense growth, no adjustment may be necessary. If revenue growth increases while expenses
remain unchanged, the result may be higher profits or net income for the company.

Capital Expenses and Revenue

Capital expenses are expenses to complete a non-recurring purchase or to complete a non-

recurring project. For example, if a company purchases a new plant this year, the cash outlay for
the purchase does not occur regularly. Capital revenue is revenue from a special project or event
that is not expected to continue into the future. For example, a metal die-cast company that
makes auto parts accepts a special project contract from a toy company to make die-cast metal
cars. The metal die-cast company receives revenue once the contract for the toy company is
complete. Since this revenue is not from its normal business operations and is from a special
project, the revenue the company receives is non-recurring.

Capital Budgets

Capital budgets are necessary to account for the expenses and costs associated with special, non-
recurring projects. If budget-makers do not anticipate that the revenue from the special project
will exceed its costs, it will likely not take on the project. For instance, assume the metal die-cast
company from the example in the previous step discovers that the estimated cost to accept the
special project exceeds the revenue it would earn from the contract. As a result, the metal die-
cast company would likely turn down the offer from the toy company.