What Are Capital Expenditures?
In business, there are two terms called capital expenditures a.k.a CAPEX and operating expenses a.k.a OPEX. The capital expenditures are expenses that will be used in the future which is beyond the accounting period. This is why the capital expenditures are allocated separately with an operational budget. Meanwhile, the operating expenses are expenses for the day-to-day spending for keeping the business running well. In short, the operating expense is for the short term. But in this article, we will talk more about the capital expenditures and we also have uploaded several capital expenditures budget template collections which you can download for free.
Breaking Down Capital Expenditures
As we have explained before, the capital expenditures are budget used by the companies to purchase services or physical goods for the long term. Most companies have these expenses to improve fixed assets. Therefore, the budget plan will include:
- Equipment and plant purchases
- Building improvements and expansions
- Hardware expenses such as computers and other technologies needed by the companies
- Vehicles which are for transporting goods
Even though the capital expenditures are more like assets but the purpose is still the same which to improve the performance of the company. This is recorded as the assets when we report it on the balance sheet.
Once the assets have been used, then it is depreciated over time to spread its costs. The depreciation represents the amount of its wear and tear which later can be used for a tax deduction. Usually, these capital expenses are depreciated over a 5-10 year period.
How Should A Company Plan Capital Expenditures?
Since the capital expenditures are mostly for investments, then you should be careful when planning the expense for this one. The first thing you need to consider is to budget it separately with your capital expenditures. This will make it simpler to calculate your tax issues in the future.
Meanwhile, the operational expenses, the deduction is applied in the current year. On the contrary, the capital expenditures are applied over the course which is known as the amortization or depreciation.
However, companies have a different method of making capital expenditures. For larger businesses the individual of each department submitting requests for things needed by the department even though later will be decided by the upper management and also the owner of the business.
One thing that you need to remember is the capital expenditure usually requires huge fund. This is why everything should be considered whether the assets will worth the cost not.
Our page provides you the best templates for making capital expenditure budget plan. This contains details from the department until the approval space. We enable these templates for various format such as MS Word, MS Excel, PDF, Google Sheet and so on.
Our purpose on making the templates free download is to give you an easy way of making your important budget plan. We believe by making these templates can also help you grow your business. We hope our templates here help you!