Question

in 250 words Is the process of preparing a Capital Budget really any different than building an Operating Budget? Please explain your thoughts

Answer 1

Capital Budget: A capital budget is a detailed projection of capex from which decisions can be taken i.e. Do we need to borrow money from financial institutions or internal cash flow will be sufficient.

Operating Budget: An operational budget is a detailed projection of the company's revenues and expenses from firm’s routine business activities i.e. buying and selling activities.

Difference:

-->The capital budget is used for long term investments like infrastructure and facilities, that are paid off over time whereas operating budget provides projection of the company's revenues and expenses for the upcoming fiscal year.

-->The capital budget is used for long term investments like infrastructure and facilities, that are paid off over time whereas operating budget is used for day to day business activities.

-->Companies that need to make capital expenditures to support growth or to replace old assets use capital budgets to plan what, when and how to fund those investments. Companies create operating budgets to plan, monitor and adjust operational resources.

Hence, process of capital budget is completely different than building operating budget.