What is the difference between operating budgets and capital budgets at an airport?

• A. Operating budgets cover day-to-day expenses.
• B. Capital budgets fund the salaries of staff.
• C. Operating budgets fund depreciation and loan payments.
• D. Capital budgets fund long-term projects and depreciation.

Answer: (D)

The key idea is that budgets come in two broad kinds: operating and capital. Operating budgets cover the day-to-day functioning of the airport—salaries, utilities, routine maintenance, and other regular expenses needed to keep the airport running. Capital budgets, on the other hand, plan for long-term investments in major assets and infrastructure—things like new runways, terminal expansions, or large equipment purchases that will serve the airport for many years. Depreciation is included here because it represents the gradual allocation of a long-term asset’s cost over its useful life, which factors into the financial assessment of these big investments. So, capital budgets fund long-term projects and the long-term cost allocation associated with those assets. The other statements describe day-to-day costs or mix in cash-flow concepts that aren’t the focus of capital budgeting.