What Is Capital Equipment & Capital Spending?

A car is an example of capital equipment.

Capital spending and capital equipment are important for businesses. Accountants will track these two accounts to see how the company is growing. Capital equipment and capital spending are balance sheet items.

Capital Equipment

Capital equipment includes items that cost more than $5,000 and are used for more than one year. The item can be leased, purchased or received as a donation. Capital equipment includes manufactured items as well as component parts of items but does not include library holdings, real property or software. An example is a car.

Capital Spending

Capital spending is the purchase of items with a lifespan greater than one year. Purchasing a car is an example of capital spending.

Relationship of Capital Spending to Capital Equipment

As companies spend money on capital, the capital equipment on their balance sheet will increase. However, if the company is retiring assets at a rate which matches their capital spending, then there will be no change on the balance sheet for total capital equipment.

References

• Defining Capital Spending
• Money Chimp: Capital Spending
• University of Wisconsin: Financial Administration: Accountability for Capital Equipment
• Entrepreneur: Capital Equipment