Capital Expenditures

Capital expenditures (or “CAPEX”) are investments in assets that will have a long life. Examples include the purchase of a building, computer equipment, machinery, office equipment, and vehicles. In accounting terms, the money spent will not run through the income statement directly but will appear on the cash flow statement. Capital investments, or the fixed cost of the purchase, will be depreciated and the depreciation expense will run through the income statement over multiple periods which are equivalent to the useful life of the asset acquired by the company.

Capex differs from a revenue expenditure which, in accounting terms, is used to cover repair and maintenance charges that do not enhance a company’s earning capacity. For example, a company might repair a piece of equipment at a factory, but it will not result in the machine producing any more goods. As a result, the initial purchase of the equipment would be a capital expenditure, while the repair cost would be a revenue expenditure.