What is a Capital Expenditure?
How Lodging-Industry Financial Executives Decide Lodging-industry financial executives want guidelines that will help them know when to capitalize an expenditure versus charging that expense to that year’s revenues. In the course of a year, the average hospitality firm makes a huge number google_ad_client = ‘pub-2905054723170537’; // substitute your client_id (pub-number) google_ad_channel = ‘6331884817’; google_ad_output = ‘js’; google_max_num_ads = ‘3’; google_ad_type = ‘text’; google_feedback = ‘on’; of expenditures. In general, most of them are easily classified as revenue expenses, since their benefits are realized within a year. As such, revenue expenses are offset against the revenue of the year in which they are incurred. On the other hand, capital expenditures are those whose benefits are realized over a time greater than a year.(1) Many expenditures, such as the purchase of land, buildings, and most equipment, are easily classified as capital expenditures. Our research, howev
A capital expenditure is an outlay of cash to acquire or upgrade a business asset. Common examples of a capital expenditure include the purchase of a new building, or the cost of significant upgrades to an existing facility. A capital expenditure is considered to be deductible, because it represents an improvement to the business, and it is deducted over the expected life of the item, rather than all at once as in the case of repair or maintenance expenditures. A capital expenditure is also sometimes referred to as capital spending or a capital expense, and many publicly traded companies list their capital expenditures for the year in annual reports, so that stockholders can see how the company is using their money in long term planning. Most companies engage in capital expenditures yearly, in an attempt to constantly upgrade and improve facilities, vehicles, and equipment. Sometimes it can be difficult to determine the difference between a capital expenditure and a routine expense. In
A survey of 73 controllers of individual hotels [various sizes] in the USA investigates the area of capital expenditures for the hospitality industry. In particular, the survey identified those criteria most often used by lodging-financial executives when making decisions to capitalize expenditures, and establishes that when purchase is part of property and equipment at time hotel is purchased (36 respondents); when purchase is part of hotel renovation (44 individuals); and when purchase is over a certain dollar amount (46 individuals) as the main criteria used in capital decisions when furniture is being purchased. Similar figures are found for equipment, furnishings, floor coverings, electric, mechanical and computer purchases. There are a lack of guidelines for the recording of capital expenditures in the hospitality industry, and accounting practitioners would like to see such guidelines developed. The professional association, the International Association of Hospitality Accountan
