Capital Expenditures Definition
What are capital expenditures? What is CAPEX? Capital expenditures, or CAPEX, refer to spending used to purchase or improve long-term assets, such as buildings or equipment. CAPEX are in contrast to current expenditures, which refer to spending on short-term assets. Capitalize and amortize capital expenditures over their useful life. Whereas, you expense current expenditures in the period when incurred. Also refer to CAPEX as capital outlays or capital investments.
Capital Expenditures – Accounting Treatment
In accounting, treat CAPEX 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 CAPEX, and if it is invested in an asset that will last less than one year, it is considered a current expenditure. The U.S. IRS Code 263 and 263A has outlined the rules and procedures for reporting CAPEX.