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Where To Present Capital Expenditures?

 

"Should capital expenditures, traditionally a cash flow item, and often a big line item, be presented in the management P&L? "

This question was asked at a recent webinar, now available on-demand:

"Designing a Great Management P&L"

Please add your thoughts about it below. Thanks!

Answers

Randall Bolten
Title: CEO
Company: Lucidity
LinkedIn Profile
(CEO, Lucidity) |

If capital expenditures are a typically important piece of management information, by all means include them in the Management P&L. Another example of information that's worth including in this report is headcount, and perhaps a ratio like Operating Expenses/Headcount, or People Costs/Headcount. (See the webinar discussion of design criterion #4, "Intuitive organization of the line items.")

The question you're asking is one good reason why it's important not to load up the page with operating expenses minutiae (see design criterion #1). If you leave yourself room for other critical management information, it enhances your ability to create a "common language" for your enterprise.

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

I think it's important to include cap ex because it also shows how the company is reinvesting dollars back to the organization.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

I think the confusion here is a result of the use of the "P&L". Management "reports" can/should contain the P&L along with cash flow (which includes capital expenditures), and other KPIs or information.

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

I work in government. Fund accounting. Obligation accounting specifically in many reporting situations.

It is not unheard of to include capital expenditures in the P&L reports (change in financial position actually) handed out to management. This is done because managers, especially project managers, cannot grasp the concept of capital vs operating. They are "checkbook" accountants and you don't want to end up arguing over accounting principals where it is just a cost containment measure.

There is also merit in doing this for reporting back to the funding agencies.

The first time I encountered this, at the seventh largest water district in the U.S., I was stunned. How could they run internal reports mixing capital expenditures in with operating? I thought they were crazy.

Then, I worked elsewhere where we had separate operating and capital project reporting and saw what the problem was. It was audience perception. Like I said above, instead of driving home the point that a capital project had obligated 100% of the appropriations but was only 50% complete with the project manager planning to go above the available funding, it could disintegrate into a pi##ing contest about the accuracy of the accounting. This was especially true where overhead burdens were involved.

In government accounting it's all about the available, specifically designated funding and controls so that the funds are spent appropriately to their intent. This is true even when the funds are not restricted.

Treating capital expenditures the same as operating for internal reporting helps the finance officer do this.

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