What is difference between capital expenditure and capital expenses?

Answer 1

Capital expenditures are for items that cost more than some particular amount (it changes over time). The item purchased must also be something that contributes to the value of the company over some number of years. A couple examples are buildings and expensive equipment. A company wants to accurately report the value of the assets of a company so that stock holders and potential stock purchasers can agree on the price to be paid for stock.

A company also wants to ensure that the current year profits are not impacted by expenditures that are really in preparation for future year business. If we are spending money this year in order to make the costs significantly less in the future then the costs of such expenditures should logically be booked in the future years. In that way the stock holders can receive profits based on the expenditures made by the company related to the current sales and the current sales.

What is the criteria for determining if a cost is classified as expense versus capital?

At the company I work for there are a number of rules for determining what expenditures are to be capitalized and what are to be expensed. For computing equipment if the equipment costs more than $5000.00 then the equipment is capitalized otherwise the cost is considered a current year expense. It is my understanding that different types of expenditures have different rules for deciding if the expenditure should be capitalized.