Capital Expenditure is the cost of purchasing long-term assets such as land, buildings, and equipment that are continuously utilized to generate revenue. These aren’t intended to be sold. Plant, Property, and Equipment accounts are used to track these expenses. The financial benefits of such an investment are spread out over multiple accounting years.
Example: Interest on capital paid, expense on asset acquisition or installation, brokerage and fee paid, and so on.
Capital expenditures should not be factored into profitability calculations since the advantages derived from them are long-term and cannot be seen in the same financial year as they were paid for. To display the real situation in the balance sheet and profit and loss statement, they must be spread out across a number of years.
A capital expenditure is an amount spent to acquire or significantly improve the capacity or capabilities of a long-term asset such as equipment or buildings. Usually the cost is recorded in a balance sheet account that is reported under the heading of Property, Plant and Equipment. The asset’s cost (except for the cost of land) will then be allocated to depreciation expense over the useful life of the asset. The amount of each period’s depreciation expense is also credited to the contra-asset account Accumulated Depreciation.
Examples of capital expenditures include the amounts spent to acquire or significantly improve assets such as land, buildings, equipment, furnishings, fixtures, vehicles. The total amount spent on capital expenditures during an accounting year is reported under investment activities on the statement of cash flows.