Capital expenditure or capital expense (abbreviated capex, CAPEX, or CapEx) is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land.[1][2] It is considered a capital expenditure when the asset is newly purchased or when money is used towards extending the useful life of an existing asset, such as repairing the roof.[3]
Capital expenditures contrast with operating expenses (opex), which are ongoing expenses that are inherent to the operation of the asset. Opex includes items like electricity or cleaning. The difference between opex and capex may not be immediately obvious for some expenses; for instance, repaving the parking lot may be thought of inherent to the operation of a shopping mall. Similarly, the costs of software for a business (either software development or software as a service licensing) might fall into either opex or capex (that is, is it merely business as usual, or is it something new, an investment with multiyear return?). The dividing line for items like these is that the expense is considered capex if the financial benefit of the expenditure extends beyond the current fiscal year.[4]
Capital expenditures are the funds used to acquire or upgrade a company's fixed assets, such as expenditures towards property, plant, or equipment (PP&E).[3] 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.[citation needed] In accounting, a capital expenditure is added to an asset account, 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.[citation needed]
Accounting rulesedit
For tax purposes, capex is a cost that 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.[citation needed] 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.[5]
Included in capital expenditures are amounts spent on:
acquiring fixed, and in some cases, intangible assets
repairing an existing asset so as to improve its useful life
upgrading an existing asset if it results in a superior fixture
preparing an asset to be used in business
restoring property or adapting it to a new or different use
starting or acquiring a new business
An ongoing question for the accounting of any company is whether certain costs incurred 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 costs are either expensable or capitalizable, but some costs 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. Sometimes an organization needs to apply for a line of credit to build another asset, it can capitalize the related interest cost. Accounting Rules spreads out a couple of stipulations for capitalizing interest cost. Organizations can possibly capitalize the interest given that they are building the asset themselves; they can not capitalize interest on an advance to buy the asset or pay another person to develop it. Organizations can just perceive interest cost as they acquire costs to develop the asset.
^Donaldson, Samuel A. Federal Income Taxation Of Individuals: Cases, Problems and Materials (2nd ed.). St. Paul: Thomson West, 2007. pg. 173
January 01, 1970
capital, expenditure, capex, redirects, here, other, uses, capex, disambiguation, this, article, multiple, issues, please, help, improve, discuss, these, issues, talk, page, learn, when, remove, these, template, messages, this, article, needs, additional, cita. Capex redirects here For other uses see Capex disambiguation This article has multiple issues Please help improve it or discuss these issues on the talk page Learn how and when to remove these template messages This article needs additional citations for verification Please help improve this article by adding citations to reliable sources Unsourced material may be challenged and removed Find sources Capital expenditure news newspapers books scholar JSTOR September 2009 Learn how and when to remove this message The examples and perspective in this article deal primarily with the United States and do not represent a worldwide view of the subject You may improve this article discuss the issue on the talk page or create a new article as appropriate December 2010 Learn how and when to remove this message Learn how and when to remove this message Capital expenditure or capital expense abbreviated capex CAPEX or CapEx is the money an organization or corporate entity spends to buy maintain or improve its fixed assets such as buildings vehicles equipment or land 1 2 It is considered a capital expenditure when the asset is newly purchased or when money is used towards extending the useful life of an existing asset such as repairing the roof 3 Capital expenditures contrast with operating expenses opex which are ongoing expenses that are inherent to the operation of the asset Opex includes items like electricity or cleaning The difference between opex and capex may not be immediately obvious for some expenses for instance repaving the parking lot may be thought of inherent to the operation of a shopping mall Similarly the costs of software for a business either software development or software as a service licensing might fall into either opex or capex that is is it merely business as usual or is it something new an investment with multiyear return The dividing line for items like these is that the expense is considered capex if the financial benefit of the expenditure extends beyond the current fiscal year 4 Contents 1 Usage 2 Accounting rules 3 See also 4 ReferencesUsage editCapital expenditures are the funds used to acquire or upgrade a company s fixed assets such as expenditures towards property plant or equipment PP amp E 3 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 citation needed In accounting a capital expenditure is added to an asset account 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 citation needed Accounting rules editFor tax purposes capex is a cost that 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 citation needed 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 5 Included in capital expenditures are amounts spent on acquiring fixed and in some cases intangible assets repairing an existing asset so as to improve its useful life upgrading an existing asset if it results in a superior fixture preparing an asset to be used in business restoring property or adapting it to a new or different use starting or acquiring a new business An ongoing question for the accounting of any company is whether certain costs incurred 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 costs are either expensable or capitalizable but some costs 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 Sometimes an organization needs to apply for a line of credit to build another asset it can capitalize the related interest cost Accounting Rules spreads out a couple of stipulations for capitalizing interest cost Organizations can possibly capitalize the interest given that they are building the asset themselves they can not capitalize interest on an advance to buy the asset or pay another person to develop it Organizations can just perceive interest cost as they acquire costs to develop the asset The counterpart of capital expenditure is operating expense or operational cost opex See also editOperating expense operational expenditure opex Total cost of ownership TCO Contract management software Capital cost Cash flow statement Income statement Balance sheet Expenses versus capital expendituresReferences edit capital expenditure capex BusinessDictionary Archived from the original on 11 April 2018 Retrieved 11 July 2017 What is a Capital Expenditure CAPEX My Accounting Course Retrieved 11 July 2017 a b Hayes Adam 18 November 2003 Capital Expenditure capex Investopedia Retrieved 11 July 2017 What is CapEx and OpEx 22 June 2021 Donaldson Samuel A Federal Income Taxation Of Individuals Cases Problems and Materials 2nd ed St Paul Thomson West 2007 pg 173 Retrieved from https en wikipedia org w index php title Capital expenditure amp oldid 1223208700, wikipedia, wiki, book, books, library,
