Expense versus Capital expenditures

[bumpjones]

Can anyone tell me how the bean counters determine what is a capital expenditure and what is an expense expenditure? Thanks

 

[tcampbe1]

1) The expenditure must be for a THING that a tag can be applied to, identifying it as a capital asset. I believe intangibles such as software can be included provided it can be identified.

2) The thing must cost above a certain threshhold, $3000 in my complany. Spending $3000 for 20 individual racks does not qualify.

 

[kcmazzel]

A capital improvement increases the value of your property-adds to your assets, and is considered a "permanent" part of the operation. (Example:We installed fixed work stations and a wall in a work area/lounge. The fixed desk-attached to the wall, and the attached bins were applicable to a capital expense, but it had to be reworked because the conference table/chairs/ and file cabinet were temporary structures and not an improvement in the function of the facility.) Another example. You can but enough change parts to build yourself a forklift, but you cannot get parts in as a capital expense-they are routine maintenance. Purchase a forklift for the same amount of money and there is no way to buy it without an approved capital expense, depreciation tables, tags, etc. There is a minimum spending level requirement, and usually a company definition of what falls under the definition. Software, printers, computer accessories at one time could be capitalized, but now cannot at our company. Usually there is a depreciation time associated with a capital expense.

I hope this helps.

 

[BJC]

Companies can also charge labor cost ot capitol projects.
If a company is building a new process line the cost of consultants and other contract labor can be charged to the cost of the equipment. It's why you hear of things like a company laying off "permenant staff" at the same time hiring contract engineers and designers. The employee is and expense while the contractors are part of the equipment just like nuts and bolts. There cost can be depreciated along with the equipment wile the employee is an ongoing expense.