| Accountancy | |
|---|---|
| Key concepts | |
| Accountant · Accounting period · Bookkeeping · Cash and accrual basis · Cash flow forecasting · Chart of accounts · Journal · Special journals · Constant item purchasing power accounting · Cost of goods sold · Credit terms · Debits and credits · Double-entry system · Mark-to-market accounting · FIFO and LIFO · GAAP / IFRS · General ledger · Goodwill · Historical cost · Matching principle · Revenue recognition · Trial balance | |
| Fields of accounting | |
| Cost · Financial · Forensic · Fund · Management · Tax (U.S.) | |
| Financial statements | |
| Balance sheet · Cash flow statement · Statement of retained earnings · Income statement · Notes · Management discussion and analysis · XBRL | |
| Auditing | |
| Auditor's report · Financial audit · GAAS / ISA · Internal audit · Sarbanes–Oxley Act | |
| Accounting qualifications | |
| CA · CPA · CCA · CGA · CMA · CAT · CFA · CIIA · IIA · CTP · ACCA |
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 extending beyond the taxable year. CAPEX is used by a company to acquire or upgrade physical assets such as equipment, property, or industrial buildings[1]. 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. 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 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.
For tax purposes, CAPEX is a cost which 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. 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.[2]
Included in capital expenditures are amounts spent on:
An ongoing question for the accounting of any company is whether certain expenses 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 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.
The counterpart of capital expenditure is operational expenditure ("OpEx").