Which of the following terms best describes the process of evaluating and planning for long-term investments in financial accounting?

• A. Cost allocation
• B. Capital budgeting
• C. Variance analysis
• D. Financial reporting

Answer: (B)

Verified step by step guidance

1. Understand the concept of capital budgeting: Capital budgeting is the process of evaluating and planning for long-term investments, such as purchasing equipment, expanding operations, or launching new projects. It involves analyzing potential returns and risks associated with these investments.
2. Differentiate between the given terms: Cost allocation refers to distributing costs across various departments or products, variance analysis involves comparing actual results to budgeted figures to identify discrepancies, and financial reporting is the process of preparing financial statements to communicate a company's financial performance.
3. Identify the term that aligns with the process of evaluating and planning for long-term investments: Among the options provided, capital budgeting specifically focuses on long-term investment decisions, making it the correct term for this process.
4. Recognize the importance of capital budgeting in financial accounting: It helps businesses allocate resources effectively, assess the feasibility of projects, and ensure that investments align with strategic goals.
5. Conclude that the correct answer is 'Capital budgeting' based on its definition and relevance to the process described in the question.