CAPEX

Capital Expenditures, or CAPEX spending refers to expenses that a business incurs to buy new assets or to add to, or upgrade, existing ones.  These assets may include property, equipment or machinery, and even buildings.  CAPEX spending can include items as small as buying a new printer to repairing a company vehicle to buying a new office building.  Generally, an incurred expense can be considered a capital expenditure if it falls within the following categories: Starting a new business, Obtaining fixed assets, Upgrading or fixing assets that were acquired as part of an acquisition, Legal costs, or Modifying property for a new business use.

The amount of CAPEX spending varies by industry; for example, oil, transportation, and telecommunications companies have far greater capital expenses than an online retailer who has very small overheads.  

Accounting Implications of CAPEX


For accounting purposes, CAPEX spending is added to the asset side of your balance sheet and cannot be counted as a deduction in the year in which it was acquired or in which you incurred the expense unless the expense was incurred to maintain a current asset at its current condition.  Typically, assets that have a useful life of over 1 year will be "capitalized", which is another way of saying it will be depreciated over its expected life. 

Additionally, CAPEX is found on the cash flow statement under the Investing Activities subsection.
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