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Capital Expenses

Capital expenses are the cost for fixed assets—the things that are typically carried on the books (reported on financial statements), last longer than a year, and provide recurring value.

Buildings, vehicles, and equipment are typically capital expenses.

Capital expenses hit the income statement in the form of depreciation. Your company doesn’t have to report the whole cost of a building all at once when they buy it. They slice off a little piece of the price tag each year (according to tax law) and use that to calculate their earnings.

That makes sense. Your company uses the capital expenses over a period of time. It should be reported over a period of time.

Many companies can be very tight fisted when it comes to capital expenses, both because of the large price tag and because of the long term impact on the financials.

For Lean, this means that you will often run up against a barrier when dealing with capital expenses. Eliminating a capital machine or adding one can take a lot of approval.

 

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