What Is Capital Expenditure?
Spending that builds assets, and how it differs from day-to-day costs.
Home › Accounting Glossary › Capital Expenditure
| Examples | Buying a van, machinery or a building; installing new equipment |
|---|---|
| Opposite of | Revenue expenditure |
| Topic | Financial accounting · Non-current assets |
Capital expenditure in plain English
If a purchase will help earn money for several years, spreading its cost over those years gives a fairer picture of profit. So the cost goes on the balance sheet first, then is charged gradually as depreciation. The cost of getting the asset ready for use, such as delivery and installation, is added to it.
Worked example
A business buys a delivery van for 18,000 and pays 500 for delivery and registration.
| Account | Debit | Credit |
|---|---|---|
| Vehicles (18,000 + 500) | 18,500 | |
| Cash | 18,500 |
- Charging a capital item to expense. Profit is understated and assets are understated that year.
- Capitalising routine repairs. They are revenue expenditure.
Frequently asked questions
Is capital expenditure on the income statement?
Not directly. It goes on the balance sheet as an asset. Only the yearly depreciation reaches the income statement.
Are installation costs capital expenditure?
Yes. Costs needed to bring an asset to its working condition and location are added to its cost.
What is the difference between capital and revenue expenditure?
Capital expenditure builds or improves long-term assets. Revenue expenditure covers day-to-day running costs.
Keep learning
This page is for general learning. Accounting rules vary by country and standard.