Capital expenditure

Published Thursday 23 July 2026

Table of contents

• Capital expenditure definition
• Capex vs opex: what's the difference?
• Types of capital expenditure: maintenance and growth
• Examples of capital expenditure
• How to calculate capital expenditure
• Where capital expenditure appears in your accounts
• Why capital expenditure matters for small businesses
• Track capital expenditure 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 a long-term asset, such as land, equipment or a building.
• Capex sits on your balance sheet as an asset and is depreciated over the asset's useful life, unlike operating expenditure, which you expense straight away.
• There are two main types: maintenance capex keeps your current operations running, and growth capex helps you expand.
• Planning capex carefully protects your cash flow, because these purchases are large upfront and pay back slowly.

Capital expenditure definition

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

These purchases are recorded on your balance sheet under assets, often as property, plant and equipment (PP&E), rather than as an immediate cost. You then depreciate the asset over its useful life, spreading the cost across the years you use it. Capex is the opposite of operating expenditure (opex), which covers the day-to-day running costs you expense in the same period. Longer-term purchases like these become part of your fixed assets.

Capex vs opex: what's the difference?

The difference comes down to timing and how each cost appears in your accounts. Capex buys long-term value, while opex keeps the business ticking over day to day.

With capex, you spend on assets you'll use for years, then depreciate the cost over time. With opex, you spend on running costs like rent, wages and power, and you record the full amount as an operating expense in the period you incur it. For a closer look at how the two compare and when each applies, read our guide on opex vs capex.

Types of capital expenditure: maintenance and growth

Capital expenditure generally falls into two groups, depending on what you're trying to achieve. One keeps your current business running, and the other helps it grow.

• Maintenance capex: spending to replace or repair assets so you keep your current operations and profitability, for example replacing an old warehouse forklift. It's a necessary expense to stay in business.
• Growth capex: spending to grow your revenue or capacity, or to enter new markets, for example buying extra forklifts for a bigger warehouse. It's a discretionary expense you choose to make when you're expanding.

Examples of capital expenditure

Capital expenditure covers a wide range of long-term purchases across different parts of your business. Here are some common examples.

• Property, including land and buildings
• Fit-outs, such as furniture and infrastructure
• Equipment, vehicles and work tools, like computers
• Research and development (R&D) expenses
• Intellectual property, such as patents and copyrights
• Buying a new business

How to calculate capital expenditure

You can work out your capital expenditure for a period straight from your financial statements. The plain formula is the change in property, plant and equipment (PP&E) between two balance sheet dates, plus the depreciation for the current period.

Say your PP&E was 80,000 dollars at the start of the year and 110,000 dollars at the end, so it grew by 30,000 dollars. If you recorded 10,000 dollars of depreciation over the same year, your capex is 30,000 plus 10,000, which is 40,000 dollars. You add depreciation back because it lowers the book value of your assets even though it isn't new spending.

Where capital expenditure appears in your accounts

Capital expenditure shows up in more than one place across your accounts. Knowing where to look helps you track what you own and what you've invested.

On the balance sheet, capex sits as an asset under property, plant and equipment (PP&E). On the cash flow statement, it appears under investing activities, showing the cash you've put into long-term assets. On the profit and loss, you depreciate the asset over its useful life, so a portion of the cost becomes an expense each period. To see how these reports fit together, read our guide to financial statements.

Why capital expenditure matters for small businesses

Capital expenditure decisions shape your cash flow and your growth for years, so they're worth planning carefully. A single purchase can tie up a large chunk of cash and take a long time to pay back.

Because capex is a large upfront cost with a long payback, it pays to budget for it and time purchases around your cash flow. Mapping these costs into a small business budget helps you invest with confidence and avoid a cash squeeze.

Track capital expenditure with Xero

Keeping tabs on capital expenditure gets easier when your assets, depreciation and cash flow live in one place. Xero brings your finances together so you can see what you own and plan your next investment with clarity, and you can get one month free when you're ready to start.

FAQs on capital expenditure

Here are answers to some frequently asked questions about capital expenditure for small business owners.

Is capital expenditure an asset or an expense?

Capital expenditure buys an asset, so it's recorded on your balance sheet rather than expensed straight away. You then turn part of that cost into an expense each period through depreciation.

How do you calculate capital expenditure?

Take the change in property, plant and equipment (PP&E) between two balance sheet dates, then add the depreciation for the current period. The total is your capex for that period.

What's the difference between capex and opex?

Capex is spending on long-term assets you depreciate over time, while opex is the day-to-day running costs you expense in the same period. Capex builds lasting value, and opex keeps the business running.

Is capital expenditure tax deductible in New Zealand?

Capital expenditure is generally capitalised and depreciated over time rather than deducted in full immediately. The rules are set by Inland Revenue (IRD), so it's worth checking your specific situation with them or your accountant.

Related Terms

• Fixed assets
• Operating expense
• Opex vs capex
• Current assets vs fixed assets
• Assets

Learn more about capital expenditure

• Understanding financial statements
• Create a small business budget
• Small business accounting
• Cash flow forecasting
• Manage fixed assets with Xero