Capital Expenditure

Business, Legal & Accounting Glossary

Definition: Capital Expenditure


Quick Summary of Capital Expenditure


Spending on non-current (fixed) assets of a business.



What is the dictionary definition of Capital Expenditure?

Dictionary Definition


n. payment by a business for basic assets such as property, fixtures, or machinery, but not for day-to-day operations such as payroll, inventory, maintenance and advertising. Capital expenditures supposedly increase the value of company assets and are usually intended to improve productivity.


Full Definition of Capital Expenditure


Capital expenditures (CAPEX or Capex) are expenditures creating future benefits. 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 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.

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.

Included in capital expenditures are amounts spent on:

  1. acquiring fixed assets
  2. fixing problems with an asset that existed prior to the acquisition
  3. preparing an asset to be used in business
  4. legal costs of establishing or maintaining one’s right of ownership in a piece of property
  5. restoring property or adapting it to a new or different use
  6. starting 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 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.

The counterpart of capital expenditure is operational expenditure (“OpEx”).


Synonyms For Capital Expenditure


capital spending, capital investment, capital outlay, capital cost, capital expenses, CAPEX, Capex

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Capital Expenditure. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/capital-expenditure/ (accessed: July 04, 2020).
American Psychological Association (APA):
Capital Expenditure. PayrollHeaven.com. Retrieved July 04, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/capital-expenditure/

Definition Sources


Definitions for Capital Expenditure are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 26th April, 2020 | 12 Views.