What is one key difference between Capital expenditures and Operating expenditures?

Question

Options

• AOperating expense cannot be written off while Capital expense can
• BOperating expenses can be depreciated over time and Capital expenses cannot
• CCapital expenses cannot include salaries and Operating expenses can
• DCapital expenditures allow for the cost to be depreciated over time and Operating does not

• A
  7% (3)
• B
  2% (1)
• C
  76% (31)
• D
  15% (6)

Explanation

Option C is correct because salaries are inherently an ongoing operational cost - they represent periodic payments for services rendered, not an investment in a long-term asset. By definition, Capital expenditures must be purchases that provide economic benefit over multiple periods (e.g., equipment, buildings, vehicles), so salaries can only ever be classified as Operating expenses.

Why the distractors are wrong:

• A reverses reality: Operating expenses are immediately written off (deducted in the period incurred); it's CapEx that cannot be fully expensed right away.
• B is the exact opposite of the rule: it is CapEx, not OpEx, that is depreciated over its useful life; OpEx is expensed in full in the current period.
• D is a true statement on its own (CapEx is depreciated over time), which makes it a tempting trap - but C is the stronger, more absolute distinction, and D's claim that OpEx allows no cost recovery is misleading since OpEx is fully deducted immediately.

Memory tip: Think "CapEx = CAPtures an asset" - if you can put it on the balance sheet and spread the cost over years, it's CapEx; if it's gone the moment it's paid (like a paycheck), it's OpEx.

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