See Also:
Depreciation
Balance Sheet
Capital Budgeting Methods
Capital Lease Agreement
Capitalization
Cash Flow After Tax
Cash Flow Statement
Cost of Capital
Capital Expenditures DefinedWhat are capital expenditures? What is capex? Capital expenditures, or capex, refer to spending that is used to purchase or improve long-term assets, such as buildings or equipment. Capital expenditures are in contrast to current expenditures, which refer to spending on short-term assets. Capital expenditures are capitalized and amortized over their useful life, while current expenditures are expensed in the period in which they are incurred. Capital expenditures are also referred to as capital outlays or capital investments.
Capital Expenditures – Accounting TreatmentIn accounting, capital expenditures are treated differently than other types of expenses. Because a capital expenditure represents a future benefit to the company – by way of acquiring or improving a long-term asset – these expenses are capitalized, or recorded as assets on the balance sheet, and then amortized over their useful life. Basically, if a capital outlay is invested in an asset that will last longer than one year, it is considered a capital expenditure, and if it is invested in an asset that will last less than one year, it is considered a current expenditure. Rules and procedures for reporting capital expenditures are outlined in the U.S. IRS Code 263 and 263A.