Which statement correctly distinguishes CAPEX from OPEX and why reporting matters?

Which statement correctly distinguishes CAPEX from OPEX and why reporting matters?

• A. CAPEX is long-lived asset spending; OPEX is ongoing operating expenses; their treatment affects cash flow, depreciation, and taxes.
• B. CAPEX is taxes; OPEX is investments.
• C. CAPEX and OPEX are both one-time costs with no tax implications.
• D. CAPEX refers to labor costs; OPEX to material costs.

Answer: (A)

CAPEX involves spending to acquire or upgrade long-lived assets that will be used over many years, so the cost is capitalized on the balance sheet and depreciated over the asset’s useful life. OPEX covers everyday, ongoing operating costs that are expensed in the period they occur. This distinction matters in reporting because it changes where the cost appears on financial statements and how it affects results. CAPEX shows up as an investing activity on the cash flow statement and reduces reported profits gradually through depreciation, while also providing tax deductions over time. OPEX reduces net income in the current period and directly influences operating cash flow, with tax effects realized in that same period. That combination—long-term asset funding versus ongoing expenses and their different impacts on cash flow, depreciation, and taxes—is why the statement is correct. The other choices mix up what CAPEX and OPEX cover, or ignore tax implications, or incorrectly classify categories like labor versus materials.