In the field of accounting, capital expenditure refers to an expense amount associated with future benefit extending beyond the current tax year. For example, purchasing fixed assets or upgrading an existing asset to extend the useful life of the asset each qualifies as a capital expenditure. When spending funds on a qualifying category, the expenditure appears as a separate entry in appropriate
. financial statements such as the companys cash flow statement. As a general rule, any property acquired with a longer useful life than the current taxable year qualifies as a capital expenditure. As a result, accountants capitalize costs associated with this type of expenditure. Capitalization occurs by adding the amount of the expenditure to the asset balance of the organization and then amortizing or depreciating the cost over the life of the asset. Categories of capital expenditures include land, buildings, equipment, overhead items such as office furniture and other tangible assets expected to last beyond the current taxable year. In addition, expenditures associated with expanding the life of an asset qualify as capital expenditures. For example, if a piece of equipment receives significant overhaul or upgrades thus expanding the useful life of the equipment, the upgrade or overhaul costs qualify as a capital expenditure. Other categories of capital expenditures include upgrading or renovating existing property, starting or purchasing a new business and acquiring some intangible assets such as stocks or bonds. Determining whether a cost qualifies as a capital expenditure versus an expense normally requires an understanding of the expected life span of the asset. Most assets qualifying as capital expenditures have a clearly defined expected life span greater than one year and represent a significant financial outlay. However, for lower cost equipment and assets such as personal computers, the cost associated may qualify as a regular expense rather than a capitalized expenditure, even though the life span may exceed one year. Most companies define a capitalization limit to help determine whether an expense shows up as a capitalized expenditure or regular expense. For expenses beneath this threshold, the amount appears as a standard expense instead of as a capitalized expenditure. Listing an asset as a capital expenditure allows a business to reflect the true costs and benefits of certain categories of assets over the life of the asset. By doing so, the business reaps certain financial benefits reflective of the actual life span of the asset instead of only in the year of the expense. http://classof1.com/homework_answers/accounting/capital_expenditure/ or http://www.accountingtools.com/questions-and-answers/what-is-a-capital-expenditure.html
