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AZ-900: Identify the differences between Capital Expenditure (CapEx) and Operational Expenditure (OpEx)
There are two approaches to invest in business:
Capital Expenditure (CapEx)
CapEx is the investment in the form of assets that return back investment over time. It is upfront money which is treated as investment, depending on your location, it can be deducted from taxes. Typically, it is taken as depreciation. Depreciation reduces the amount of taxes a company pays via tax deductions. Larger is depreciation expense — lower the taxable income so lower the company’s tax.
Examples; Server costs, Storage costs, Network costs, Datacenter, infrastructure costs, etc
Benefits: This is a good option when the budget is limited to a project. You can plan your expenses at the start of the project or during the budget period. When costs are fixed, then you know how much is being spent.
Operational Expenditure (OpEx)
OpEx is opposite of CapEx. It is the spending money on services or products that the company uses for a business’s operation. It is a products and services company have now and billed for them. In simple words, it is money expenditure spend every day. Many companies prefer it because of favourable tax treatment.
