Capital expenditure (capex)

Published Monday 17 August 2026

Table of contents

• What is capital expenditure?
• Capex vs opex: what's the difference?
• Capital expenditure vs revenue expenditure
• Types of capital expenditure
• Examples of capital expenditure
• How to calculate capital expenditure
• Where to find capital expenditure in your financial statements
• Capital expenditure and tax in Ireland
• Manage your capital spending with Xero
• FAQs on capital expenditure
• Related terms
• Learn more about capital expenditure

Key takeaways

• Capital expenditure (capex) is money you spend to buy or upgrade long-term assets like property, equipment and vehicles, recorded on the balance sheet rather than the profit and loss statement.
• Capex is different from operating expenditure (opex), which covers the day-to-day running costs your business uses up within the year.
• You can estimate capex by taking the change in property, plant and equipment between two periods and adding the depreciation charged in the later period.
• In Ireland you cannot deduct accounting depreciation for tax, but you can claim capital allowances, with plant and machinery written off at 12.5% a year over eight years.

What is capital expenditure?

Capital expenditure is money you spend to acquire or upgrade a long-term asset, such as land, equipment or a building. It is also known as capex.

You make capital expenditures on assets you expect to benefit your business for more than one year. A computer is a good example, as long as you plan to use it in your business rather than sell it within the year. Investing in longer-term assets is common among Irish businesses: ESRI research found that nearly 60% of Irish SMEs invested in capital assets in 2023.

You record capital expenditure on your balance sheet under assets, often as property, plant and equipment (PP&E), rather than on your profit and loss statement. As you use the asset, its cost is depreciated over its useful life. The test for whether to capitalise a cost or expense it comes down to time: if the benefit lasts beyond the current year, you treat it as capital expenditure, and if it is used up within the year, you treat it as an operating expense.

Capex vs opex: what's the difference?

The main difference between capex and opex is how long you use what you bought. Capital expenditures buy assets you use to make money over a long period. Operating expenditures are what you spend day-to-day to keep the business running.

Operating expenditures include your payroll, utilities, insurance, marketing and the materials you use up in production. You deduct them in full in the period you incur them, while capex is spread across the life of the asset through depreciation.

Capital expenditure vs revenue expenditure

Capital expenditure and revenue expenditure describe two ways money leaves your business. Knowing which is which affects how a cost appears in your accounts and how it is treated for tax.

• Capital expenditure buys or improves a long-term asset, so its cost sits on the balance sheet and is written down over several years
• Revenue expenditure covers day-to-day trading costs and routine repairs, so it is deducted in full in the period you incur it

Replacing a worn tyre on a delivery van is revenue expenditure, while buying the van itself is capital expenditure.

Types of capital expenditure

Capex generally falls into two types, based on whether you are protecting your current position or building for the future.

• Maintenance capex is what you spend to replace assets and keep operating at your current level of revenue and profitability. Replacing an old warehouse forklift is an example, and it is a necessary cost of staying in business
• Growth capex is money you spend to increase revenue and profitability, by adding assets that lift productivity or capacity or take you into new markets. Buying three new forklifts for a larger warehouse is an example, and it is a discretionary choice

Examples of capital expenditure

Capital expenditure covers a wide range of long-term assets. Common examples include:

• Property, including your land and buildings
• Fit-outs of buildings, such as furniture and infrastructure
• Equipment, vehicles and work tools, like computers
• Software and hardware you expect to use for years
• Research and development (R&D)
• Intellectual property, such as patents and copyrights
• Buying another business

How to calculate capital expenditure

If your capex is not listed as a single figure, you can work it out from your accounts. The widely used formula takes the change in property, plant and equipment and adds back the depreciation for the period:

Capex = (closing PP&E − opening PP&E) + depreciation for the period

Here is how to apply it in three steps:

1. Find your opening and closing PP&E from the balance sheet at the start and end of the period
2. Find the depreciation charged during the period from your profit and loss statement
3. Subtract opening PP&E from closing PP&E, then add the depreciation

For example, if a café starts the year with 50,000 euro of PP&E, ends with 80,000 euro, and charged 10,000 euro of depreciation, its capex is (80,000 − 50,000) + 10,000 = 40,000 euro. Capex is one of the inputs used to turn a profit measure like net operating profit after tax into a free cash flow figure, so tracking it helps you see how much cash is left to fund the rest of the business. This calculation approach is set out by the Corporate Finance Institute.

Where to find capital expenditure in your financial statements

Capital expenditure shows up in more than one place in your financial statements, which is why it is easy to miss.

• On the cash flow statement, capex appears under investing activities as money spent on property and equipment
• On the balance sheet, the asset is added to property, plant and equipment, then reduced over time as accumulated depreciation builds up

The asset does not appear as a cost on your profit and loss statement in the year you buy it. Only the depreciation charge does, which is why a big purchase can dent your cash without immediately changing your profit.

Capital expenditure and tax in Ireland

You cannot deduct the depreciation in your accounts when working out your tax bill in Ireland. Instead, you claim capital allowances, which are the tax version of depreciation.

For most plant and machinery, the wear and tear allowance lets you write off the cost at 12.5% a year on a straight-line basis over eight years, according to Revenue. Different assets can attract different rates, and some energy-efficient equipment qualifies for an accelerated allowance, so it is worth checking the current rules for the asset you are buying.

Manage your capital spending with Xero

Big asset purchases are easier to plan when you can see your numbers clearly. Xero brings your assets, depreciation and reports into one place, so you can track what you own and use cash flow forecasting to time your next investment. Ready to take control of your capital spending? Sign up and get one month free to see how Xero fits your business.

FAQs on capital expenditure

Here are answers to some common questions about capital expenditure.

Is capital expenditure tax-deductible in Ireland?

Not directly. You claim capital allowances instead of deducting the asset or its accounting depreciation, with most plant and machinery written off at 12.5% a year over eight years.

What is the difference between capex and opex?

Capex buys long-term assets that appear on the balance sheet, while opex covers day-to-day running costs deducted in full in the year. The line between them is how long the benefit lasts.

Does capital expenditure affect profit?

Not all at once. The purchase reduces your cash straight away, but it only reduces profit gradually through the depreciation charged each year.

What counts as capital expenditure?

Any spending on an asset you expect to use for more than a year, such as premises, vehicles, equipment or patents. Routine repairs and consumables do not count.

Related terms

• Assets
• Balance sheet
• Expense
• Fixed cost

Learn more about capital expenditure

• Run financial reports with Xero
• Double-entry bookkeeping explained
• Cash vs accrual accounting