Capital expenditure

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Capital expenditures ("CapEx") are expenditures used by a company to acquire or upgrade physical assets such as equipment, property, 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). 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.

Included in such amounts should be spending on:

acquiring fixed assets
bringing them into business
legal costs of buying buildings
carriage inwards on machinery bought
any other cost needed for a fixed asset ready for use.

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 amortized over multiple years. Capitalized expenses 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.

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