Capex and Opex

Expenses are the costs incurred for a consideration. An expense may be capital or revenue in nature, usually incurred by disbursal of money. They can also be recognized by agreeing to pay off an obligation, e.g. paying rent, buying machinery, paying taxes, etc. Capex and Opex refer to capital expenditure and operational expenditure respectively.

 

Capital Expenditure (Capex)

Also known as Capex, is an expenditure incurred by a business to acquire fixed assets or add value to them in the view of creating future benefits. The benefits derived from capital expenditure extend beyond the accounting period of the actual spend. The assets in question might be tangible or intangible.

This will include everything from costs incurred for installation of a fixed asset, legal costs to acquire it, extension or improvement of fixed assets.

This type of expenditure is shown in the balance sheet on the asset side.

 

Example of Capital Expenditure (Capex)

Buying furniture for 50,000, a machine for 10,00,000, spending 10,000 and 40,000 for machine’s installation and upgrading respectively. All of these are examples of Capex incurred by a business. Even the upgrading and installation cost will qualify as a capital expenditure.


 

Operational Expenditure (Opex)

Also known as operating expenditure and operating expense, it is an ongoing cost that a business has to spend for running a business and its day-to-day operations. The benefits derived from such expenses are exhausted within the same accounting period and don’t carry forward. It is the opposite of capital expenditure.

This type of expenditure is shown in the income statement on the debit side.

 

Example of Operational Expenditure (Opex)

Telephone, electricity, maintenance and repairs, insurance are few examples of Opex.

 

>Read Direct and Indirect Expenses