Learn all about 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
🏨 Buildings / Land
➡️ 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
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