Opex vs capex
Opex is your day-to-day running costs. Capex is what you invest in long-term assets. Here's how they differ.
November 2023 | Published by Xero
Published Thursday 23 July 2026
Table of contents
Key takeaways
- Opex is your day-to-day running costs, and capex is what you spend to buy or upgrade long-term assets.
- Opex is expensed on your profit and loss statement, while capex sits on your balance sheet and is depreciated over time.
- Inland Revenue generally lets you deduct operating expenses in the year you incur them, but capital assets are usually claimed through depreciation.
- Most businesses need both, so the goal is to balance steady running costs with well-timed investments.
Opex vs capex: an overview
Opex and capex are two ways of grouping the money that leaves your business. Knowing the difference helps you read your numbers and plan your spending.
Opex, also known as operating expenditure, is your day-to-day business spending. Capex, or capital expenditure, is what you invest in longer-term assets.
You separate opex from capex to see what you spend to run the business against what you spend to equip it. Different tax rules can apply to each, so the split also helps you pay the right amount of tax.
What is opex?
Opex is short for operating expenses, and it covers the ongoing costs of keeping your business running. Think of it as the spending you need to keep the lights on each month.
Rent, power and wages are all opex because they're short-term costs that keep the business operating. These operating expenses are often recurring and fairly steady for most small businesses. Opex doesn't include the cost of goods sold (COGS).
Examples of operating expenses
Operating expenses show up across almost every part of your business. Here are some common examples:
- Wages and salaries for your team
- Rent, power and other utilities
- Marketing, insurance and consultant fees
- Repairs and general maintenance
- Depreciation, which is the cost of your assets ageing and losing value over time
What is capex?
Capex is short for capital expenditure, and it covers what you invest in assets that last beyond a single year. These are bigger, less frequent purchases that help you build or grow the business.
Common capex includes buying machinery, property, buildings and work tools, and sometimes even whole other businesses in the case of an acquisition. You can think of capex in two broad groups.
Examples of capital expenditure
Capex usually falls into maintenance spending or growth spending. Here are some examples of each:
- Replacing broken or worn-out equipment to maintain current performance
- Buying extra machinery to increase what you can produce
- Purchasing property or land to expand your premises
- Investing in vehicles, computers or other long-term tools
- Acquiring another business to help you grow
Difference between opex and capex
Opex and capex both represent money leaving your business, so it's easy to lump them together. The key differences come down to timing, profit impact, how discretionary the spending is, and how steady it tends to be.
Operating expenses are short-term costs for things you'll use within a year, and you can often adjust them quickly. If your power bill runs high one month, you can usually rein it in the next. Capital expenses buy assets that stick around for longer, so the effects of a poor capex decision tend to last.
Opex is also part of how you work out profit, because you subtract it from revenue. The higher your opex, the more revenue you need to earn a profit and protect your operating profit. Capex sits on the balance sheet as an asset, so it isn't part of that profit calculation.
Here's opex against capex at a glance:
- Opex covers short-term running costs, while capex funds long-term assets.
- Opex reduces profit in the current period, while capex is capitalised and depreciated over time.
- Opex is usually essential to trade, while capex is often discretionary and can be delayed.
- Opex tends to follow a predictable pattern, while capex is more sporadic and lumpy.
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How opex and capex are recorded
Opex and capex land in different places in your accounts, which is why the split matters for your reporting. Getting this right keeps your financial statements accurate.
Opex is recorded on your profit and loss statement, and it also shows up in your cash flow statement under cash flow from operations. Capex is recorded on the balance sheet as an asset, and it appears in the cash flow statement under cash flow from investing.
Opex vs capex and tax in New Zealand
The opex and capex split also shapes how you claim spending at tax time. Inland Revenue treats the two types of spending differently, so it pays to know which is which.
Operating expenses are generally deductible in the year you incur them, so they reduce your taxable income for that period. Capital assets usually can't be deducted all at once. Instead, you claim their cost gradually through depreciation across the years you use the asset.
This is a general guide to how the two are treated, and the rules can change based on your situation. For the current rules and rates that apply to you, check Inland Revenue or talk to your accountant.
Which is better, opex or capex?
Neither opex nor capex is better on its own, because most businesses rely on both to operate and grow. The right choice depends on what you're buying and what your cash flow can handle.
Leaning towards opex can keep more cash free and give you flexibility, which suits businesses that want to stay light and adjust quickly. Choosing capex makes sense when you're investing in assets that build long-term capacity or value.
Where you have a choice, such as leasing equipment against buying it, weigh up the effect on your cash flow, tax position and long-term plans. Mapping these decisions into your budget helps you time bigger purchases without straining day-to-day spending.
Track opex and capex the easy way with Xero
When your spending is organised, telling opex from capex becomes far simpler. Xero brings your expenses, assets and reports together in one place, so you can see where your money goes and plan your next move with confidence. New to Xero? Get one month free and start tracking opex and capex today.
FAQs on opex vs capex
Here are answers to some frequently asked questions about opex vs capex to help you apply the difference in your own business.
What are examples of opex?
Common operating expenses include rent, power, wages, marketing, insurance and general repairs. These are the recurring costs of running your business each month.
What are examples of capex?
Capital expenditure includes buying machinery, vehicles, property, computers or other long-term equipment. Acquiring another business also counts as capex.
How are opex and capex reported?
Opex appears on your profit and loss statement and reduces profit in the current period. Capex is recorded as an asset on your balance sheet and is depreciated over time.
Which is better for a small business?
Most small businesses need both, so it isn't about picking one. Favour opex for flexibility and free cash, and choose capex when you're investing in assets that build lasting value.
How does New Zealand tax treat opex and capex?
Inland Revenue generally lets you deduct operating expenses in the year you incur them. Capital assets are usually claimed gradually through depreciation, so check the current rules with Inland Revenue or your accountant.
Related terms
Learn more about opex and capex
Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.