What is one key difference between Capital expenditures and Operating expenditures?
What is one key difference between Capital expenditures and Operating expenditures?
The key difference between Capital expenditures and Operating expenditures is that Capital expenditures allow for the cost to be depreciated over time, while Operating expenditures do not. Capital expenditures are investments in long-term assets that will be used for multiple years, hence their cost is spread out over the useful life of the asset through depreciation. Operating expenditures, on the other hand, are the day-to-day expenses required to run a business and are fully deducted in the accounting period they are incurred.
The correct answer is D. Sometimes, salaries can be included as a capital expense (when you buy an asset, the installation labor cost can be capitalized as well), so C is not a good answer
Reference: IRS Publication 535: Business Expenses "You generally capitalize the cost of property that has a useful life substantially beyond the tax year. You recover its cost through depreciation. Operating expenses, on the other hand, are deducted in the year they are paid or incurred." You can access the full document here: IRS Publication 535 Summary The key difference is that capital expenditures allow for the cost to be depreciated over time, while operating expenses are fully deducted in the accounting period they are incurred. This reflects the long-term versus short-term nature of these expenses.
OPEX wont reduce overtime
Salaries can be capitalised
Answer is D.
Answer C is correct, reference CCISO manual page 582