How is CapEx typically recorded in financial statements?

Capital Expenditures (CapEx) are typically recorded on the balance sheet rather than the profit and loss statement. This is because CapEx involves significant investments in physical assets that are expected to provide benefits over a long period. When a company acquires or improves property, plant, and equipment, these expenditures are capitalized on the balance sheet, increasing the value of the assets.

Over time, the allocated portion of these expenditures gets depreciated, which means that while the initial expense is not directly reflected in the profit and loss statement, the depreciation expense will appear as an expense on the profit and loss statement across the useful life of the asset. This process ensures that the financial statements reflect the cost of the asset in relation to the revenues it helps generate.

By recording CapEx on the balance sheet, companies can show their investments in long-term assets, which is important for stakeholders who are assessing the company’s financial health and future growth potential.