Capital Investments vs. Operational Expenses

MBE 503: Accounting and Ethics

Instructor James Wright

Kimberly Stringer

Regular expenses can be expensed as they are incurred or they can be capitalized. Day to Day functions of a business require operating expenses in order to run. Operational Expense (OPEX) include sales and general administrative expenses which do not include cost of goods sold or COGS, taxes, depreciation or interest. Operating expenses show on the profit and loss whereas capital expenditures show as major investments and show on the balance sheet and are depreciated over time (www.diffen.com). Marketing expenses are usually operating expense unless it shown that it has long term benefits. Some believe that if a company is expected rapid growth the recording items as an operating expense is better. However, Bernard Golden from CIO.com believes otherwise. “Once you have purchased a capital good, you’re stuck with it, as anyone who has purchased a car understands; even if you’re no longer excited about owning it, the finance company still expects a monthly payment. By contrast if you rent a car, you are committed to it only as long as you want to use it and once you have paid for that use, you have no further financial obligation”. Companies usually want to direct their investment into generating revenue and this is why they would rather lease than purchase (Logicalis, 2013).
Some expenditures for startup costs can be capitalized in the United States but not all countries allow this to occur. Capital items can create a tax savings because they depreciate and this lowers the income which in return lower the taxes. Synthetic leases would allow a company to reap these benefits and are included on an off-balance sheet. Operating expenses report profit and taxes for the earnings in reporting period. Capital investments are money