Capital expenditure, also known as capex, refers to the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. It is considered a capital expenditure when the asset is newly purchased or when money is used towards extending the useful life of an existing asset, such as repairing the roof. Capital expenditures are the funds used to acquire or upgrade a companys fixed assets, such as expenditures towards property, plant, or equipment (PP&E) .
Capital expenditures are different from operating expenses (OpEx), which are the daily costs of running a business. Operating expenses recur on a regular and predictable basis, such as in the case of rent, wages, and utility costs. Capital expenses, on the other hand, occur much less frequently and with less regularity.
In accounting, a capital expenditure is added to an asset account, thus increasing the assets basis (the cost or value of an asset adjusted for tax purposes) . Capex is commonly found on the cash flow statement under "Investment in Plant, Property, and Equipment" or something similar in the Investing subsection.
Calculating capital expenditures can help companies avoid going over their allotted budget when spending money on all types of assets. Capital expenditures are reflected in the cash flow statement, and can be calculated by adding current depreciation with the change in plant, property, and equipment (PP&E) from the previous accounting cycle.
