What is a capital expenditure versus a revenue expenditure?
A
capital expenditure is an amount spent to acquire or improve a
long-term asset such as equipment or buildings. Usually the cost is recorded in an
account classified as
Property, Plant and Equipment. The cost (except for the cost of land) will then be charged to
depreciation expense over the useful life of the asset.
A
revenue expenditure is an amount that is
expensed immediately—thereby being matched with
revenues
of the current accounting period. Routine repairs are revenue
expenditures because they are charged directly to an account such as
Repairs and Maintenance Expense. Even significant repairs that do not
extend the life of the asset or do not improve the asset (the repairs
merely return the asset back to its previous condition) are revenue
expenditures.
(Continued..)
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Capex
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Revex (Opex)
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| Definition | Capital
expenditures are expenditures creating future benefits. A capital
expenditure is incurred when a business spends money either to buy fixed
assets or to add to the value of an existing asset with a useful life
that extends beyond the tax year. |
OpEx (Operational
expenditure) refers to expenses incurred in the course of ordinary
business, such as sales, general and administrative expenses (and
excluding cost of goods sold - or COGS, taxes, depreciation and
interest). |
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| Also known as | Capital Expenditure, Capital Expense |
Operating Expense, Operating Expenditure, Revenue Expenditure |
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| Accounting treatment | Cannot
be fully deducted in the period when they were incurred. Tangible
assets are depreciated and intangible assets are amortized over time. |
Operating expenses are fully deducted in the accounting period during which they were incurred. |
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| In throughput accounting | Money spent on inventory falls under capex. |
The money spent turning inventory into throughput is opex. |
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| In real estate | Costs incurred for buying the income producing property. |
Costs associated with the operation and maintenance of an income producing property. |
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| Examples | Buying machinery and other equipment, acquiring intellectual property assets like patents. |
Wages, maintenance and repair of machinery, utilities, rent, SG&A expenses |
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