Capital Expenditure

Capital Expenditure refers to the funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, machinery, and equipment. These expenditures are typically significant investments that are expected to provide long-term benefits to the business.

In accounting, capital expenditures are classified as fixed assets on the balance sheet and are not fully deducted in the year they are incurred. Instead, they are capitalized and depreciated over their useful life. For example, if a company purchases a new piece of machinery for $100,000, this amount is recorded as an asset and then depreciated over its useful life, affecting the income statement gradually rather than all at once.