Opex vs capex

Published Monday 31 August 2026

Table of contents

• What is opex (operating expenditure)?
• What is capex (capital expenditure)?
• Key differences between opex and capex
• Examples of opex and capex
• How opex and capex are treated for tax and accounting
• How to calculate opex and capex
• When to choose opex vs capex
• Track your business spending with Xero
• FAQs on opex vs capex
• Related terms
• Learn more about opex and capex

Key takeaways

• Opex covers day-to-day running costs, and you expense these in the same year they are incurred
• Capex buys long-term assets, and you recover the cost gradually through depreciation over the asset’s useful life
• The Philippines has no Annual Investment Allowance, so a large asset is written off across its useful life rather than in one year
• The choice between opex and capex changes your cash flow and shifts when your tax deductions land, so it also shapes how your financial statements look

What is opex (operating expenditure)?

Operating expenditure, or opex, covers the day-to-day running costs that keep your business going but don’t create a long-term asset. These are the regular payments you make simply to operate.

Common examples include wages, rent, utilities, insurance, marketing and supplies. Many of these sit under your overhead costs, the ongoing expenses of running the business.

Because opex is used up within the period, it appears on your profit and loss statement in the period it is incurred. Cost of goods sold (COGS) sits on a separate line from your operating expenses, even though both reduce profit.

What is capex (capital expenditure)?

Capital expenditure, or capex, is money you spend on assets that benefit your business for more than one year. Instead of hitting the profit and loss statement straight away, capex is recorded on the balance sheet as a fixed asset.

Typical examples include machinery, vehicles, commercial property and computer hardware. Capex tends to fall into two types: maintenance capex keeps existing assets running, such as replacing worn equipment, while growth capex funds new assets that expand what your business can do.

Rather than claim the full cost in one year, you spread it over the asset’s useful life through depreciation.

Key differences between opex and capex

Opex and capex both cost you money, but they behave very differently on your books. The four points below show where they part ways.

Time horizon

This is the clearest split between the two. Opex covers short-term costs used up within the year, while capex buys assets that deliver value across several years.

Impact on profitability

How each cost hits your profit differs. Opex reduces profit in full in the year you spend it, while capex reduces profit gradually as depreciation is recorded each year.

Flexibility and timing

Opex gives you room to adjust spending as conditions change, since costs like subscriptions or leases can be scaled up or down. Capex locks in a larger upfront commitment, so its timing matters more for your cash position.

Predictability

Recurring opex is easier to forecast because the amounts stay fairly steady month to month. Capex arrives in larger, less frequent chunks, which can make budgeting harder to plan.

Examples of opex and capex

Seeing the two side by side makes the difference concrete. Here is how each type of spending tends to look for a Philippine small business.

Common operating costs for a Philippine small business include the items below.

• Staff salaries and government contributions such as SSS, PhilHealth and Pag-IBIG
• Rent for your shop, office or warehouse
• Electricity, water and internet bills
• Business permits and insurance premiums
• Marketing, advertising and online subscriptions
• Office and cleaning supplies

Common capital purchases for a growing business include the examples below.

• Delivery vehicles or company motorcycles
• Manufacturing or kitchen equipment
• Commercial property or major fit-outs
• Computers, servers and other hardware
• Furniture and fixtures for a new branch

How opex and capex are treated for tax and accounting

The way you record opex and capex changes your tax bill and your reported profit, so the Philippine rules are worth knowing. They set out when a cost lowers your taxable income and how it lands in your accounts.

Operating expenses that are ordinary and necessary to your business are deductible from your gross income in the year they are incurred. This sits under the National Internal Revenue Code, administered by the Bureau of Internal Revenue (BIR).

Capital expenditure works differently. You capitalise the cost and recover it through depreciation over the asset’s useful life, rather than deducting it in full in the year of purchase. Depreciation is generally computed on a straight-line basis, though other systematic methods are also acceptable.

The Philippines has no Annual Investment Allowance, so you cannot write off a large asset in one go. The available deductions instead recover a ₱500,000 machine, for example, piece by piece across the years you use it, not all at once.

For financial reporting, Philippine companies follow Philippine Financial Reporting Standards based on international standards, and property, plant and equipment is covered by IAS 16.

Whichever category a cost falls into, clean records make tax time far easier. Xero can help you track your business expenses and match them to the right accounts throughout the year.

How to calculate opex and capex

You can put figures to both types of spending with two straightforward formulas. Each pulls numbers you already keep in your accounts.

For opex, add up your operating costs for the period: OpEx = total operating costs for the period. This includes items like rent, wages, utilities and marketing across the month, quarter or year you are measuring.

For capex, you compare your asset base across two periods: CapEx = PP&E current period − PP&E prior period + depreciation. PP&E stands for property, plant and equipment, taken from your balance sheet, and adding back depreciation captures spending that the fall in book value would otherwise hide. You can follow a full worked version of the capital expenditure formula from Corporate Finance Institute.

Tracking accumulated depreciation over time also shows how much of each asset’s value you have already written off.

When to choose opex vs capex

There is no single right answer, and the better option depends on your cash position and how long you need the asset. The trade-off comes down to flexibility now against value over time.

Opex suits spending you want to keep flexible. Subscriptions, leasing and cloud software let you keep cash free and adjust as your needs shift.

Capex makes sense for assets that earn their keep over several years, when you have the cash to buy them outright. The depreciation that follows reduces your taxable income steadily over time.

Most small businesses run a mix of both, buying core equipment while renting or subscribing to everything else. Planning ahead helps you manage your cash flow so a big purchase doesn’t leave you short.

Track your business spending with Xero

Keeping opex and capex straight is far easier when your numbers update themselves. Xero categorises your expenses as they come in and tracks depreciation on your fixed assets, so the reports you need at tax time are ready to pull. Start with Xero and get one month free to see your spending clearly in one place.

FAQs on opex vs capex

Still weighing up how a particular cost should be treated? These quick answers cover the questions Philippine business owners ask most.

Is software capex or opex?

Cloud software you pay for by subscription is opex, since you are renting access rather than owning it. Software you buy outright and use for years can be treated as capex and depreciated.

Is salary opex or capex?

Salaries for your day-to-day team are opex. Wages paid to workers building a long-term asset, such as constructing a building, can sometimes be capitalised into that asset’s cost.

Are laptops capex or opex?

A laptop that lasts several years is usually capex and depreciated over its useful life. Low-value or short-lived devices are often expensed as opex, depending on your accounting policy.

Can you convert capex to opex?

Yes, many businesses shift from buying to renting, for example by moving from owned servers to cloud services. This turns a one-off capex into recurring opex and frees up cash upfront.

Which is better for a small business, capex or opex?

Neither wins outright: opex protects your cash and keeps you flexible, while capex can be cheaper over the life of an asset you use heavily. Match the choice to how long you need the asset and how much cash you hold.

Is depreciation capex or opex?

Depreciation is neither: it is the accounting method that spreads a capex cost across the years you use the asset. It appears as an expense on your profit and loss statement without being a fresh cash outlay.

Related terms

• Capital expenditure
• Operating expense
• Fixed assets
• Balance sheet
• Cash flow

Learn more about opex and capex

• Startup business costs
• Cash flow forecasting
• Run financial reports
• Manage fixed assets