Capital Expenditures: Definition, Formula & Examples

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: Capital Lease in Accounting: Definition, Requirements & Example

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
Your next lesson will play in 10 seconds
  • 0:00 What is Capital Expenditure?
  • 0:48 Balance Sheet and Fixed Assets
  • 1:43 Key Formulas
  • 2:25 Example
  • 3:15 Lesson Summary
Save Save Save

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Log in or Sign up

Speed Speed

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Kimberly Winston

Kimberly has a MBA in Logistics & Supply Chain Management

Businesses often make purchases that help them to maintain or grow their current operations. This is called capital expenditure. In this lesson, you will learn what capital expenditure is and examine its formula as well as some examples of it.

What Is Capital Expenditure?

Why does anyone buy new furniture? Generally, it is bought to improve the overall look and feel of your home. Most people are not going to purchase new furniture on a monthly basis or even on a yearly basis. Purchasing furniture is not a regular household expense.

When businesses purchase physical items that enhance or maintain their performance, but are not regular everyday expenses, this expense falls under the category of a capital expenditure. It is also known as a capital expense, or CAPEX. Capital expenditures do one of two things: they either help to upgrade the existing business, or they promote growth, such as the purchase of a new business.

Balance Sheet and Fixed Assets

You can find information about a business' capital expenditure on its balance sheet. Typically, it will be shown in the section labeled fixed assets or, sometimes, long-term assets or non-current assets. A fixed asset is an accounting term that refers to a physical asset that cannot readily be converted to cash. This would include things like office furniture, property, or equipment.

Let's say you bought a house that cost $250,000. Most people would not pay for it all at once. The cost of it would be spread out over a specific period of time. Businesses do the same thing with capital expenditures. In accounting, this is called capitalization. What this means is that the cost of the physical asset is spread out over its useful life. The balance sheet also shows the asset's depreciation. This may be defined as a decrease in the asset's value over time.

Key Formulas

In order to calculate a business's capital expenditure, you would need the balance sheet for the years you are interested in.

Capital expenditure = purchase of new fixed assets + upgrades to existing fixed assets - sale of any fixed assets during the accounting period

It is also helpful to understand how depreciation is calculated. There are several ways that depreciation may be calculated. However, this lesson will only discuss the straight line depreciation method, because it is the simplest.

Annual Depreciation = Capital Expenditure / Life (in years)


Capital expenditure varies depending on the business and the industry. Some businesses, like an oil refinery, would require large capital expenditures for things such as a plant and equipment. However, capital expenditure is required for most businesses. Let's look at an example.

To unlock this lesson you must be a Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use

Become a member and start learning now.
Become a Member  Back
What teachers are saying about
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account