Operating expenses, also called OpEx in its abbreviated form, are expenses required for the day-to-day functioning of a business. Operating expenses include rent, inventory costs, marketing, payroll, insurance, and funds allocated for research and development.
If equipment is leased instead of purchased, it is typically considered an operating expense. General repairs and maintenance of existing fixed assets such as buildings and equipment are also considered operating expenses unless the improvements will increase the useful life of the asset.
Operating Expenses vs Capital Expenses
Capital expenses, also called CapEx in its abbreviated form, are purchases that a business makes as an investment. Capital expenditures include costs related to acquiring or upgrading tangible and intangible assets. Tangible business assets include real estate, factory equipment, computers, office furniture, and other physical capital assets. Intangible assets include intellectual property, copyrights, patents, and trademarks.