Distinguish between capital budgeting and operating budgeting.

• A. Capital budgeting selects long-term investments; operating budgeting covers short-term revenues, expenses, and cash flow for day-to-day operations.
• B. Capital budgeting is for salaries; operating budgeting is for capital assets.
• C. Capital budgeting is only for dividends; operating budgeting is for debt.
• D. Capital budgeting and operating budgeting are the same.

Answer: (C)

The main idea here is that capital budgeting focuses on long-term investments and large asset commitments, while operating budgeting plans the near-term, day-to-day operating activities. Capital budgeting involves evaluating and selecting projects or purchases that will affect the firm for years to come, such as building a new plant, buying major equipment, or entering a new market, using tools like net present value or internal rate of return. Operating budgeting, by contrast, lays out the expected revenues, expenses, and cash flows for the coming period—often a year—covering items like salaries, rent, utilities, and other costs of running the business. This distinction matters because it keeps long-term strategic decisions separate from short-term operational planning. For example, salaries and other operating costs belong in the operating budget, not in capital budgeting, while dividends and debt decisions relate to financing activities rather than investment appraisal. Therefore, the correct view is that capital budgeting selects long-term investments and operating budgeting plans short-term revenues, expenses, and cash flows for daily operations.