CAPEX vs OPEX

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CAPEX vs OPEX

Whiteboard Wednesday Episode 18: CAPEX vs OPEX

Whiteboard Wednesday is me, a whiteboard and learning about all things IT Asset Management (ITAM), every Wednesday!

https://www.youtube.com/watch?v=6MAJtlxof8M

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CAPEX and OPEX, two terms used when describing budgets. They are describing how money is spent in a company. It is useful to know these terms when we’re communicating with our colleagues about where budgets going to come from where money is spent.  

What is CAPEX?

So, let’s say that you heard your company wants to buy a big truck for the company to deliver a product or whatever it might be to your company. You would call that a capital expenditure. Capital expenditure (Capex) is an investment from your company. It’s something that you could recognize as an asset because once you’ve bought that truck, it’s now an asset of the company, it can go on your books as an asset of the company. It would typically be depreciated as an asset and recognized as an asset.  

What is OPEX?  

The petrol used to fill that truck every year and look after it is typically called OPEX. So, its operational expenditure, it is the day to day running expenses for running the company. from an IT perspective. You might be buying a big piece of hardware and that could be capital expenditure, it could be an asset that goes into the company and can be recognized as an asset on the books and then depreciated over time. Then this is for day to day running expenses operational expenditure from a software point of view when you were buying perpetual software that you owned outright, you could consider that an asset and recognize its capital expenditure as subscriptions. It depends how you buy it, whether you’re buying like three years up front or on an ongoing basis, but the line is blurred between CAPEX and OPEX.

What matters to your company

What matters here is what’s important to your company. How do they want things to be recognized and what’s important to them?  Capital expenditure puts assets on the company’s books, it makes the company look better, you have more assets, you have more value, whereas operational expenditure you can deduct from your income tax bill, so you pay less tax. It depends on what your company’s doing, what the priorities are, and where the budgets lie, but you need to be aware of these terms when you’re managing budgets. 

See also: CAPEX vs OPEX – a tale of two budgets 

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