Question : What is the difference between a capital budget and an operating budget?

Option 1: A capital budget deals with long-term investments, while an operating budget deals with day-to-day expenses

 

Option 2: A capital budget deals with day-to-day expenses, while an operating budget deals with long-term investments

 

Option 3: A capital budget is a surplus budget, while an operating budget is a deficit budget

 

 

Option 4: A capital budget is a deficit budget, while an operating budget is a surplus budget

Correct Answer: A capital budget deals with long-term investments, while an operating budget deals with day-to-day expenses

Solution : The correct answer is (a)  A capital budget deals with long-term investments, while an operating budget deals with day-to-day expenses

The difference between a capital budget and an operating budget lies in the types of expenses they encompass and the timeframes they cover.

A capital budget primarily focuses on long-term investments in assets such as infrastructure, buildings, equipment, and other capital expenditures. It involves planning and allocating funds for projects that are expected to provide benefits over an extended period, often several years or more. The capital budget typically includes items such as construction, renovation, major equipment purchases, and investments in long-term assets. The purpose of the capital budget is to enhance or expand the productive capacity of an organization or government.

On the other hand, an operating budget deals with day-to-day expenses required to run the regular operations of an organization or government. It covers ongoing costs such as salaries, wages, utilities, maintenance, supplies, and other recurring expenses necessary to sustain the organization's activities. The operating budget is typically prepared and reviewed on an annual basis and focuses on short-term financial activities.

So, the primary distinction is that a capital budget pertains to long-term investments, while an operating budget pertains to day-to-day expenses.