When are capital expenditures included in operating expenses?

• A. Never
• B. Always
• C. Only if approved mid-year
• D. When they are for repairs

Answer: (A)

Capital expenditures are investments in long-term assets. They are recorded on the balance sheet as assets and are depreciated over time, not expensed in the period they occur. Operating expenses, by contrast, are the costs of running daily operations and are charged to the income statement in the period incurred. Because CapEx is capitalized and then expensed via depreciation, it is never included in operating expenses.

A related nuance: routine repairs are typically treated as operating expenses, while repairs that extend the asset’s life or enhance its capacity can be capitalized as CapEx. So the idea of CapEx being for repairs doesn’t fit the normal treatment of expensing repairs as OpEx.