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Learn all about Fixed Assets & Capex

Fixed Assets & Capex

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➡️ What are Fixed Assets?

Fixed assets are physical assets that are utilized over a long period of time

These assets often times can’t get easily converted to cash

➡️ What’s Capex?

Capex stands for Capital Expenditures, and it represents the $$ used to acquire Fixed Assets

➡️ What are some examples of Capex?

🔧 Machinery & Equipment

💻 Laptops

🏨 Buildings / Land

🛋️ Furniture

➡️ How do Fixed Assets & Capex Get recorded?

Since fixed assets are used over multiple periods, they get capitalized on your balance sheet

When you make a purchase:

Debit Fixed asset

Credit Cash

Fixed assets then get expensed as the benefit is used via an account called Depreciation / Accumulated Depreciation

Debit Depreciation Expense

Credit Accumulated Depreciation

I’ve seen some companies record accumulated depreciation for each fixed asset type, while others record 1 combined accumulated depreciation account for all fixed assets

➡️ Why can Capex be so tricky?

A few reasons…

1️⃣ There are different depreciation methods (Straight line & Double declining often the most popular)

2️⃣ Capex may result in a large cash outlay, but because it doesn’t show on your P&L, it may be missed

3️⃣ There are different rules for depreciation methods used for tax purposes vs GAAP

Capex can be a large piece for one company, and a small piece for another - it all depends on your what exactly your business does

Take a look at our new article here


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