Distinguish between operating expenses and capital expenditures in property accounting and give examples of each.

• A. Operating expenses are long-term improvements like roof replacement; capital expenditures are ongoing costs.
• B. Capital expenditures are long-term improvements (roof replacement, elevators); operating expenses are ongoing costs (maintenance, utilities).
• C. Operating expenses are ongoing costs (maintenance, utilities); capital expenditures are long-term improvements (roof replacement, elevators).
• D. Operating expenses include mortgage principal payments; capital expenditures include repairs.

Answer: (C)

In property accounting, costs are split into what keeps the property running day to day and what adds long-term value or life to the asset. Operating expenses are the ongoing, routine costs needed to operate and maintain the property in its current condition, and they’re expensed in the period they occur. Examples include maintenance, utilities, and other ongoing service costs. Capital expenditures, on the other hand, are investments that extend the property's life or increase its value, so they’re capitalized on the balance sheet and depreciated over time. Examples include a roof replacement or replacing an elevator.

This distinction fits because it separates the regular, recurring costs from improvements that provide future benefits. Mortgage principal payments are financing activities, not operating or capital expenditures, and routine repairs that don’t extend the asset’s life are expensed as operating costs.