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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]

Usage

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 rules

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.

The counterpart of capital expenditure is operating expense or operational cost (opex).

References

^ "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

[1] "capital expenditure (capex)". BusinessDictionary. Archived from the original on 11 April 2018. Retrieved 11 July 2017.

[2] "What is a Capital Expenditure (CAPEX)?". My Accounting Course. Retrieved 11 July 2017.

[investopedia-3] Hayes, Adam (18 November 2003). "Capital Expenditure (capex)". Investopedia. Retrieved 11 July 2017.

[4] "What is CapEx and OpEx?". 22 June 2021.

[5] Donaldson, Samuel A. Federal Income Taxation Of Individuals: Cases, Problems and Materials (2nd ed.). St. Paul: Thomson West, 2007. pg. 173

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+{{Short description|Costs associated with the fixed assets}}
-{{one source|date=February 2011}}
+{{redirect|Capex}}
-{{Merge to |Capital cost|date=July 2010}}
+{{Multiple issues|
-{{Refimprove|date=September 2009}}
-{{Globalize/USA|date=December 2010}}
+{{More citations needed|date=September 2009}}
+{{Globalize|article|USA|2name=the United States|date=December 2010}}
+}}
 {{Accounting}}
+'''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.<ref>{{cite web|title=capital expenditure (capex)|url=http://www.businessdictionary.com/definition/capital-expenditure-CAPEX.html|website=BusinessDictionary|access-date=11 July 2017|language=en|archive-date=11 April 2018|archive-url=https://web.archive.org/web/20180411184811/http://www.businessdictionary.com/definition/capital-expenditure-CAPEX.html|url-status=dead}}</ref><ref>{{cite web|title=What is a Capital Expenditure (CAPEX)?|url=http://www.myaccountingcourse.com/accounting-dictionary/capital-expenditure|website=My Accounting Course|access-date=11 July 2017}}</ref> 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.<ref name=investopedia/>
-'''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 that extends beyond the taxable year. Capex are used by a company to [[Purchase|acquire]] or [[upgrade]] physical [[assets]] such as [[equipment]], [[property]], or industrial buildings.  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 as adjusted for tax purposes). Capex is commonly found on the [[cash flow statement]] as "Investment in Plant Property and Equipment" or something similar in the Investing subsection.
+Capital expenditures contrast with [[operating expense]]s (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 (business)|business as usual]], or is it something new, an [[fixed investment|investment]] with multiyear [[return on investment|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]].<ref>{{cite web |url=https://www.comindware.com/blog-what-is-capex-and-opex/ |title=What is CapEx and OpEx?|date=22 June 2021}}</ref>
-For tax purposes, capital expenditures are costs that cannot be deducted in the year in which they are paid or incurred and must be capitalized. The general rule is that if the property acquired has a useful life longer than the taxable year, the cost must be capitalized. The capital expenditure costs are then amortized or depreciated over the life of the asset in question. As stated above, capital expenditures create or add 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.<ref>Donaldson, Samuel A. Federal Income Taxation Of Individuals: Cases, Problems and Materials (2nd ed.). St. Paul: Thomson West, 2007. pg. 173</ref>
+==Usage==
+Capital expenditures are the funds used to acquire or upgrade a company's [[fixed asset]]s, such as expenditures towards property, plant, or equipment (PP&E).<ref name=investopedia>{{cite web|last1=Hayes|first1=Adam|title=Capital Expenditure (capex)|url=http://www.investopedia.com/terms/c/capitalexpenditure.asp|website=Investopedia|access-date=11 July 2017|date=18 November 2003}}</ref>  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|date=May 2020}}  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|date=May 2020}}
+==Accounting rules==
+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|date=May 2020}} The capital expenditure costs are then [[amortization (business)#Accounting|amortized]] or [[depreciation|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.<ref>Donaldson, Samuel A. Federal Income Taxation Of Individuals: Cases, Problems and Materials (2nd ed.). St. Paul: Thomson West, 2007. pg. 173</ref>
 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
-# fixing problems with an asset that existed prior to acquisition if it results in a superior fixture
+# 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 of the accounting of any company is whether certain expenses should be ''capitalized'' or ''expensed''. Costs that are expensed in a particular month simply appear on the [[financial statement]] as a cost that was incurred that month. Costs that are capitalized, however, are [[amortization (business)#Accounting|amortized]] 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.
+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|operational expenditure]] ("OpEx").
+The counterpart of capital expenditure is [[operating expense]] or [[operational costs|operational cost]] (opex).
 ==See also==
-*[[operating expense|Operational expenditure]] (OPEX)
+*[[Operating expense]] (operational expenditure, opex)
+*[[Total cost of ownership]] (TCO)
+*[[Contract management software]]
+*[[Capital cost]]
 *[[Cash flow statement]]
 *[[Income statement]]
-*[[Balance Sheet]]
+*[[Balance sheet]]
+*[[Expenses versus capital expenditures]]
-*[[Capital cost]]
 == References ==
+{{Reflist}}
-<references/>
+{{Accounting navbox}}
-==External links==
+{{Authority control}}
-*[http://www.investopedia.com/terms/c/capitalexpenditure.asp Capital Expenditure — CAPEX]
+[[Category:Financial capital]]
-{{DEFAULTSORT:Capital Expenditure}}
-[[Category:Capital]]
 [[Category:Accounting terminology]]
+[[Category:Capital budgeting]]
+[[Category:Fixed asset]]
-[[ar:نفقات رأسمالية]]
-[[cs:Kapitálové náklady]]
-[[dk:Kapitalinvestering]]
-[[de:Investitionskosten]]
-[[es:Capex]]
-[[fr:Immobilisation (comptabilité)]]
-[[ko:CAPEX]]
-[[it:Capex]]
-[[nl:CAPEX]]
-[[pl:CAPEX]]
-[[pt:CAPEX]]
-[[ru:Капитальные расходы]]
-[[sv:Capex]]
-[[uk:Капітальні вкладення]]

v t e Accounting
Type	Financial accounting Cost accounting Management accounting Forensic accounting Fund accounting Governmental accounting Social accounting Tax accounting
Statements	Income statement Balance sheet Statement of changes in equity Cash flow statement
Terms	Debits and credits Revenue Cost of goods sold Operating expense Capital expenditure Depreciation Gross income Net income