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.
