Question

How do you think operational budgets are different from capital budgets?

What do you think is meant by debt management?

Answer 1

1. Operational budgets are for revenue purpose and capital budgets are for long term capital investment purpose.

1. Under operational budgets, daily routine and short term incomes and expenses are recorded. And under capital budgets, long term investment and other capital expenditures are recorded, that is funding for business.

3. Operational budgets are prepared for short term period such as 1 year or for quarter, semi annual period or monthly budget. Capital budgets are prepared for long term periods such as 3 year, 5 year, 10 year etc.

4. Operational budgets are used by departmental managers for day to day decision making. Capital budgets are used by top management for long term decision making.

5. Example of operational budgets- Cash budget, sales budget, purchase budget etc. Example of capital budgets - Investment in any long term project, research and development expenditure budget.

DEBT MANAGEMENT-

Debt management is basically taking decisions for managing debt effectively. This includes the following points -

(A) The sources from where the debt will be borrowed. For example- bank loan, debentures, bonds etc.

(B) The amount of debt required.

(C) The time period within which the debt will be repaid

(D) Communicating and discussing with creditors and loan providers regarding terms and conditions of debt.

(E) Considering the interest payment and its tax effects.