Question

Discuss the difference between O&M expenses and capital improvement expenses. How does airport financial accounting factor into expenses?

Answer 1

1. An operating expense is the expenditure required for the day-to-day functioning of a business. In contrast, capital expenditure is an expense that is a business to generate a profit in the future. Operating expenses and capital expenditures are managed entirely separately for accounting and tax plans.

When it comes to accounting and financial statements, these two types of expenses are treated differently. However, a company can sometimes choose whether an expense will be an operating or capital expense, for example, whether an essential asset is leased or purchased.

Operating expenses are expenses incurred during the Capital expenditure is when a business contributes money, uses guarantee, or purchases a new property on loan or adds to the cost of an existing asset with the purpose of making value for more than a single tax year. Essentially, capital expenditure represents an investment in the business. Capital expenditure is recorded on the company's balance sheet as an asset rather than an expense on the income statement. The asset is depreciated over the total life of the asset, with a period of depreciation expense for the company's income statement, normally monthly. Accumulated depreciation is recorded on the company's balance sheet as the sum of all depreciation expenses, and it reduces the value of the asset over the life of that asset. Regular business, such as general and administrative expenses, research and development, and cost of goods sold. Operating expenses are much easier to conceptualize than capital expenses because they are part of day-to-day operations.

2. The financial management of the airport generates expenses and revenue based on the operations and services of the airport. There is a large volume of economic sources that the airport administration has to take care of. The results obtained from the financial data related to the economic conditions assist the decision planning for the financial accounting of the airport.

Operating expenses:
There are four groups of operating expenses. They are:

• Airside area expenses
• Terminal and ground expenses
• Expenses General and Administrative Expenses

Expenses associated with:

Airside Area

• Maintenance of runways, taxiways, aprons and parking area.
• Services Airport Equipment Services.
• Power supply for airspace.

Ground Terminal and Ground

• Maintaining employee parking slots, access roadways, and waste disposal.
• Improvement of landscape areas.

Administrative General and Administrative

• Payment for admin staff, maintenance operators and other officials in the airport

Revenue policies at commercial airports:

The risks and responsibilities of operating an airport are legally tied as agreements that define revenue strategies in airports. Terms and conditions governing airport and aircraft facilities are established in airport use agreements. This includes both legal contracts and leases. Financial practices that are used are:

Residual Cost Approach:

• The financial aspects of airport operations are noted by the airlines, so it relates to residual agreements between operators and airlines.
• Airlines charge to collect non-aeronautical revenue.

Compensation Cost Approach:

• Air carriers are required to pay a fee equal to the cost of the air carrier facilities so that they can recover the actual costs of the service they use.
• Surplus revenue is generated from the compensatory viewpoint.

Airport Funding:
It is difficult to manage airport finances and to keep up with increasing budgets in the coming years. Therefore there are three alternative sources of funds for improving capital costs

• Federal and state grant programs
• Bond financing
• Private investment