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Capital Expenditure

The amount spend by a company to buy fixed assets is known as capital expenditure (CAPEX). These funds are used to upgrade physical assets like property, industrial buildings or equipments. These are expenditures that create future benefits. A capital expenditure is added to an asset account in accounting. It increases the assets basis. CAPEX is commonly found in cash flow statement as Investment in Plant Property and Equipments. Capital expenditures are costs that cannot be deducted in the year in which it incurred. Capital expenditure costs are capitalized. If the property acquired has a useful life longer than taxable year, the cost has to be capitalized. Then the cost should be amortized or depreciated over the life of the asset in question.

Amounts spent on capital expenditure

Amount spent on acquiring fixed assets and intangible assets, fixing problems with assets existed prior to acquisition, amount spent on preparing asset to be used in business, the sum spent on restoring property or adapting it to a different use, the amount spent on starting a new business are forms of capital expenditure. Some expenses are capitalized or expensed while some others are not capitalized. All the costs incurred in a particular month will be mentioned in the financial statement. Capitalized costs are amortized over multiple years. Capitalized expenditures will be mentioned in balance sheet. Some expenses are capitalized and amortized over multiple years.  Operational expenditure is the counterpart of capital expenditure.

Operational Expenditure (OPEX)

The cost for running a business or system is known as operating expense or operational expenditure. OPEX includes the cost of workers and facility expenses like rent and utilities. Operating expenses are day to day expenses like sales, administration or research and development. The basic necessities of business and expenses made for smooth flow of business fall under this category. The amount spend in business to turn inventory into throughput is known as operating expense. The sum of all business operating expenses for a particular time period is mentioned as operating expenses in income statement. Operating expenses include accounting expenses, license fees, maintenance and repairs, advertising, office expenses, supplies, attorney fees and legal fees, utilities like telephone and electricity, insurance, property management, property taxes, travel and vehicle expenses. Expenses incurred while travelling for business purposes is known as travel expenses. Leasing commissions, salary & wages and raw materials also come under operating expenses. Costs associated with the operation and maintenance of assets is operating expenses.


  • Define capital expenditure?
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