What are Capital Expenditures aka 'CapEx'? Definition, Overview, and Example of Capital Expenditures

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What are Capital Expenditures aka "CapEx"? Definition, Overview, and Example of Capital Expenditures

Capital Expenditures (CapEx) is a term that is used to refer to expenses that are incurred in the process of acquiring or upgrading capital goods. This term is also occasionally used to refer to the amount of money that is spent in the process of buying capital goods. The main difference between Capital Expenditures and Operating Expenditures is that the former refers to the purchase of long-term assets, while the latter refers to the expenses that are incurred to meet short-term operational requirements. Capital Expenditures are said to be a major factor in determining the long-term profitability of a company. In business, Capital Expenditures are sometimes also referred to as CapEx.

Capital expenditures, or capital improvements, sometimes refer to as "cap ex" are non-recurring investments into a property or other fixed asset.

Capital expenditures increased the value or the useful life of a property as opposed to repairs, which are typically recurring items that maintain the current condition of a property.

From an accounting standpoint, a capital expenditure is typically amortized or depreciated over the useful life of the asset, as opposed to a repair, which is included in the operating expenses in the current year.

Some examples of capital expenditures would be a new building, a new roof, or a new heating and cooling system in contrast.

Smaller more recurring items, such as painting walls, fixing sinks and toilets or replacing electrical outlets would be considered repairs and maintenance items, not capital expenditures.

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