What Is CapEx (Capital Expenditure)?

CapEx (capital expenditure) is money spent to buy, upgrade or extend the life of long-term assets - equipment, vehicles, machinery, buildings, fit-outs. Instead of hitting the profit and loss account in the month it is paid, a capital purchase is capitalised: recorded as an asset on the balance sheet and written off gradually through depreciation over its useful life. Its counterpart is OpEx, the day-to-day operating spend - rent, salaries, subscriptions, repairs - that is expensed immediately.

What counts as CapEx

Two tests, both of which must pass:

• Longevity - the purchase will be used for more than one accounting year.
• Materiality - it costs more than the organisation’s capitalisation threshold, the policy line below which even long-lived items are simply expensed.

Upgrades count when they extend an asset’s life or capability: a new engine for a van, a structural extension, a major machine refit. Repairs that merely restore normal working order do not - fixing the van’s existing engine is OpEx, replacing it with a better one is usually CapEx. The boundary cases keep accountants in work, but the principle is whether you have created or improved a long-term asset or just kept one running.

CapEx examples for a small business

• Laptops, desktops and monitors for a growing team
• A delivery van or company vehicle
• Workshop machinery, power tools above the threshold, test equipment
• Office fit-out: desks, partitioning, networking installation
• Perpetual software licences bought outright (subscriptions, by contrast, are OpEx)

Smaller long-lived items - cables, peripherals, external drives - typically fall under the threshold and are expensed, even though they may outlast some capitalised kit. That is the threshold doing its job: keeping the fixed-asset ledger focused on purchases worth tracking financially.

CapEx vs OpEx

The distinction shapes more than bookkeeping:

• Cash vs expense timing. CapEx drains cash now but spreads the expense over years; OpEx hits both at once. A profitable-looking year can hide heavy capital spending, and vice versa.
• Budget ownership. CapEx usually needs a business case and sign-off above normal spending authority; OpEx flows through departmental budgets.
• Tax treatment. Capital purchases are typically relieved through depreciation or capital allowances over time rather than deducted immediately - the rules vary by jurisdiction.
• The subscription shift. Buying servers is CapEx; renting cloud capacity is OpEx. Many businesses now deliberately trade capital outlay for operating spend, which changes the budget shape without changing what the business actually uses.

Comparing routes properly means looking past the label at the total cost of ownership - purchase or subscription, support, consumables and disposal together.

CapEx and the asset register

Every capitalised purchase creates two records that must stay in step: a line on the finance ledger that depreciates on schedule, and a physical or digital asset out in the business that gets used, moved, repaired and eventually disposed of. When the two drift apart, the ledger fills with ghost assets - equipment still depreciating on paper that was lost or scrapped long ago - and asset valuation quietly stops meaning anything. The fix is operational, not accounting: give each capital purchase an asset record at the point of arrival, with its purchase price, date, supplier and expected useful life, and keep that record updated until disposal. AMPthilly’s asset register stores exactly those financial fields per asset, with CSV export so finance can reconcile the register against the ledger at year-end.

Related terms

• OpEx - the operating spend expensed immediately rather than capitalised
• Capitalisation Threshold - the policy line between CapEx and an immediate expense
• Amortisation - how capitalised intangibles like licences are written down
• Asset Valuation - keeping defensible values on the assets CapEx creates
• Total Cost of Ownership - the full lifetime cost behind a buy-vs-subscribe decision