Typically, a company classifies operating expenses into:

Operating expenses are influenced by the company’s industry, business model, and other factors - and vary from company to company. In summary, CAPEX provides a long-term benefit to the company, while OPEX provides immediate benefit. The IRS lays out guidelines on how companies may capitalize different types of assets. A company deducts CAPEX over many years after the initial expense and OPEX in the current year. CAPEX depreciates over time, but OPEX is fully deductible in the same year.

Examples of intangible fixed assets include patents, copyrights, and trademarks.Īnother difference between OPEX and CAPEX is the accounting treatment of the expenses. Examples of tangible fixed assets include land, buildings (including significant upgrades or improvements), and equipment. Fixed assets may be tangible or intangible assets - items that can’t be touched, felt, or seen because they don’t have a physical form. CAPEX is the upfront investment to purchase the long-term asset, and OPEX is the necessary, repeated expenses to use the asset.ĬAPEX involves purchases of fixed assets - company resources that have a useful life longer than 12 months. For example, a manufacturer needs to purchase upfront equipment that she plans to use for years to generate revenue, but she also incurs recurring daily expenses to operate that equipment. The principal difference between operating expenses (OPEX) and capital expenses ( CAPEX) is the timing of the expense. Examples include interest payments, losses on the sale of undeveloped land, and lawsuit settlement expenses. Both depreciation and amortization are non-cash operating expenses.Īny expenses not related to a business core operations are non-operating expenses. A company’s accountant uses depreciation to quantify a decline in the value of physical fixed assets, and amortization to reduce the book value of intangible assets. For example, company assets lose value through use and time, so a company needs to account for that loss of value. Some operating expenses don’t involve cash outflows. By minimizing fixed costs, management enables the company with a lower break-even goal to start making a profit. A common technique is to identify operating expenses that are fixed costs (expenses like rent that don’t change based on the increase or decrease in a company’s daily activities) and variable costs (expenses like hourly wages that change with the level of company activity). One of the main roles of management is to strike the appropriate balance between a low total operating expense and a high ability to make revenue. Typically, companies refer to operating expenses as OPEX. Examples of operating expenses include rent, insurance, office supplies, repair and maintenance, salary and wages, utilities, sales and marketing, and depreciation. A company incurs operating expenses to generate revenue and maintain competitiveness. Operating expenses are the mandatory and required costs associated with running regular business activities.

Cogs vs operating expenses