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Capital expenditure
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Accountancy

Key concepts

Accountant · Accounting period · Accrual · Bookkeeping ·

Cash and accrual basis · Cash flow forecasting · Chart of
accounts · Convergence · Journal · Special journals ·
Constant item purchasing power accounting · Cost of
goods sold · Credit terms · Debits and credits · Double-
entry system · Mark-to-market accounting · FIFO and
LIFO · GAAP / IFRS · General ledger · Goodwill ·
Historical cost · Matching principle · Revenue
recognition · Trial balance

Fields of accounting

Cost · Financial · Forensic · Fund · Management · Tax

(U.S.)

Financial statements
 Balance Sheet · Cash flow statement · Income statement ·
Statement of retained earnings · Notes · Management
discussion and analysis · XBRL

Auditing

Auditor's report · Control self-assessment · Financial

audit · GAAS / ISA · Internal audit · Sarbanes–Oxley Act

Accounting qualifications

CA · CPA · CCA · CGA · CMA · CAT · CIIA · IIA · CTP

 v
 t
 e

Capital expenditures (CAPEX or capex) are expenditures creating future benefits. A capital
expenditure is incurred when a business spends money either to buy fixed assets or to add to the
value of an existing fixed asset with a useful life extending beyond the taxable year.

Contents
 1 Usage
 2 Accounting rules
 3 See also
 4 References
 5 External links

Usage
CAPEX is used by a company to acquire or upgrade physical assets such as equipment, property,
or industrial buildings[1]. In the case when a capital expenditure constitutes a major financial
decision for a company, the expenditure must be formalized at an annual shareholders meeting or
a special meeting of the Board of Directors. In accounting, a capital expenditure is added to an
asset account ("capitalized"), thus increasing the asset's basis (the cost or value of an asset
adjusted for tax purposes). CAPEX is commonly found on the cash flow statement under
"Investment in Plant, Property, and Equipment" or something similar in the Investing subsection.

Accounting rules
For tax purposes, CAPEX is a cost which cannot be deducted in the year in which it is paid or
incurred and must be capitalized. The general rule is that if the acquired property's useful life is
longer than the taxable year, then the cost must be capitalized. The capital expenditure costs are
then amortized or depreciated over the life of the asset in question. Further to the above, CAPEX
creates or adds basis to the asset or property, which once adjusted, will determine tax liability in
the event of sale or transfer. In the US, Internal Revenue Code §§263 and 263A deal extensively
with capitalization requirements and exceptions.[2]

Included in capital expenditures are amounts spent on:

1. acquiring fixed, and in some cases, intangible assets

2. repairing an existing asset so as to improve its useful life
3. upgrading an existing asset if its results in a superior fixture
4. preparing an asset to be used in business
5. restoring property or adapting it to a new or different use
6. starting or acquiring a new business

An ongoing question for the accounting of any company is whether certain expenses should be
capitalized or expensed. Costs which are expensed in a particular month simply appear on the
financial statement as a cost incurred that month. Costs that are capitalized, however, are
amortized or depreciated over multiple years. Capitalized expenditures show up on the balance
sheet. Most ordinary business expenses are clearly either expensable or capitalizable, but some
expenses could be treated either way, according to the preference of the company. Capitalized
interest if applicable is also spread out over the life of the asset.

The counterpart of capital expenditure is operational expenditure ("OpEx").

See also
 Operating expense (operational expenditure, OPEX)
 Capital cost
 Cash flow statement
 Income statement
 Balance sheet
 Expenses, versus Capital Expenditures, tax terminology in the US.

References