Capital expenditure definition

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Capital expenditure, or CAPEX, is the term used for the money spent by businesses on physical assets. It’s an important part of understanding a company’s accounts.

Businesses use capital expenditure in the development of new business, or as a long-term investment. That can mean buying a new office, developing a new warehouse, or fixing equipment within a factory.

CAPEX is defined as a physical asset that is either new or an extension of the usefulness of an existing asset. The asset being acquired or upgraded usually fits into one of three categories: property, industry (plant) or equipment.

In accounting, capital expenditures have their costs spread out over their useful lives, in a process called capitalisation: unless they are used to fix or maintain an already-held asset.

Operating expenses (OPEX), the short-term costs of running a business day-to-day, costs (and therefore taxes) are incurred in the given year.

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