Distinguish between capital expenditure (CAPEX) and operating expenditure (OPEX).

Distinguish between capital expenditure (CAPEX) and operating expenditure (OPEX).

• A. CAPEX funds long-term assets (plants, equipment) with depreciation; OPEX covers ongoing operating costs (wages, utilities) for daily operations.
• B. CAPEX covers day-to-day expenses; OPEX funds long-term investments.
• C. CAPEX and OPEX are the same concept.
• D. CAPEX only refers to cash transactions; OPEX to non-cash subsidies.

Answer: (A)

In financial terminology, expenditures are classified by whether they create a lasting asset or cover ongoing operating needs. Capital expenditure refers to investing in long-term assets such as plants or equipment. Because these assets provide benefits over many years, their cost is capitalized on the balance sheet and depreciated over the asset’s useful life. Operating expenditure covers the day-to-day costs required to run the business, like wages and utilities, and these costs are expensed in the income statement in the period they’re incurred. This framing is why the described approach is the best: CAPEX funds long-term assets and is linked to depreciation, while OPEX covers ongoing operating costs for daily operations. It also aligns with how these items appear in financial statements—CAPEX moves through the balance sheet and depreciation schedule (and often shows up as investing cash outflows), whereas OPEX hits the income statement immediately as an expense (and shows up as operating cash outflows). Other descriptions misplace the roles or conflate concepts, such as reversing which type funds long-term investments, claiming they’re the same, or confusing cash versus non-cash items like subsidies.

In financial terminology, expenditures are classified by whether they create a lasting asset or cover ongoing operating needs. Capital expenditure refers to investing in long-term assets such as plants or equipment. Because these assets provide benefits over many years, their cost is capitalized on the balance sheet and depreciated over the asset’s useful life. Operating expenditure covers the day-to-day costs required to run the business, like wages and utilities, and these costs are expensed in the income statement in the period they’re incurred.

This framing is why the described approach is the best: CAPEX funds long-term assets and is linked to depreciation, while OPEX covers ongoing operating costs for daily operations. It also aligns with how these items appear in financial statements—CAPEX moves through the balance sheet and depreciation schedule (and often shows up as investing cash outflows), whereas OPEX hits the income statement immediately as an expense (and shows up as operating cash outflows).

Other descriptions misplace the roles or conflate concepts, such as reversing which type funds long-term investments, claiming they’re the same, or confusing cash versus non-cash items like subsidies.