Module I· Three-Statement Mechanics & LinkagesIntermediate
Question
A truck is bought for 100 (cash-funded) — what happens?
Answer
Day 0 — purchase of the truck (cash-funded)
- Income statement: no effect — capex is capitalized, not expensed.
- Balance sheet:
| Account | Δ |
|---|---|
| PP&E | +100 |
| Cash | −100 |
Asset swap — total assets unchanged.
- Cash flow:
| Item | Δ |
|---|---|
| Investing (capex) | −100 |
| ΔCash | −100 |
Year 1 — use (5-year useful life, straight-line depreciation, 30% taxes)
Income statement
| Item | Δ |
|---|---|
| D&A | −20 |
| Net income | −14 |
Cash flow
| Item | Δ |
|---|---|
| Net income | −14 |
| + D&A (non-cash) | +20 |
| = OCF | +6 |
Balance sheet
| Account | Δ |
|---|---|
| PP&E, net | −20 |
| Cash | +6 |
| Retained earnings | −14 |
Sanity check
The change in assets (−20 + 6 = −14) equals the change in equity (retained earnings −14) — the balance sheet balances.
Deep diveShow more details
Key point
On day 1 capex is a pure asset swap — cash is converted into PP&E. Over the useful life it becomes an income-statement expense via D&A. That is the structural difference between capex and opex. When a senior asks 'how does capex differ from opex?', the clean answer starts right here.