Question

What are the differences in the focus of planning an operating budget and a capital budget? What different factors must be considered in each kind of budget?

Answer 1

What are the differences in the focus of planning an operating budget and a capital budget?

There is clear differences between operating budget and capital budget. Let’s discuss these differences that should be noted while planning an operating budget and planning a capital budget.

1. Operating budget is made for day to day operational expenses whereas capital budget is planned for future capital nature expenditures.

2. Operating budget is normally planned for short time period whereas capital budget is planned for long-time period.

3. Operating budget is closely associated with working capital management whereas capital budget is aclosely associated with long-term assets and long-term financial sources management.

4. Operating budget planning involves low amount of funds in compare to capital budget planning.

5. For operating budget planning we need short-term analysis and management whereas for capital budget planning we needs log-term planing and management.

What different factors must be considered in each kind of budget?

Folowing factors must be considered in each kind of budget;

1. Past information about the firm & company.

2. Objectives & goals of the firm & company.

3. Determine about the main purpose for budget prepartion.

4. Study nature of budget of the competitors.

5. We need to consider some base line costs and their increasing or decreasing nature.

6. Short-term and long-term Investment requirement must be properly estimated or better budget planning.

7. Proper estimation about the all element of budget.

8. Study pattern of income & spending so that good & proper actual figures can be figured out.

9. Continous review & revision is the main requirement of each and every type of budgeting.