Which statement about capital expenditures and operating expenses is correct?

• A. Capital expenditures are never included in operating expenses
• B. Capital expenditures are always included in operating expenses
• C. Capital expenditures are included only for replacements
• D. Capital expenditures and operating expenses are the same thing

Answer: (A)

Capital expenditures are funds spent to acquire, upgrade, or extend the life of long‑term assets, and they’re capitalized on the balance sheet and depreciated over time. Operating expenses, by contrast, are the day‑to‑day costs that are expensed in the current period and hit the income statement immediately. Because CapEx is recorded as an asset and depreciated rather than expensed, it does not appear as part of operating expenses in the period. In a financial model, CapEx shows up as a cash outflow under investing activities and affects the income statement only through depreciation over the asset’s life, not as a current operating cost. Therefore, the statement that capital expenditures are never included in operating expenses is the correct one. The other options misstate the relationship: CapEx isn’t always included in OpEx, it isn’t limited to replacements, and they are not the same thing.