Definition of Terms
Capital expenditures include all expenditures during the year for both new and used structures and equipment chargeable to asset accounts for which depreciation or amortization accounts are ordinarily maintained. For projects lasting longer than 1 year, this definition includes gross additions to construction-in-progress accounts even if the asset was not in use and not yet depreciated. For capital leases, the company using the asset (lessee) is asked to include the cost or present value of the leased assets in the year in which the lease was entered. Also included in capital expenditures are capitalized leasehold improvements and capitalized interest charges on loans used to finance capital projects.
Capital expenditures for structures consist of the capitalized costs of buildings and other structures and all necessary expenditures to acquire, construct, and prepare the structure for its intended use. The costs of any machinery and equipment which are an integral or built-in feature of the structure are classified as structures. Also included are major additions and alterations to existing structures and capitalized repairs and improvements to buildings.
New structures include new buildings and other structures not previously owned, as well as buildings and other structures that have been previously owned but not used or occupied. Used structures are buildings and other structures which have been previously owned and occupied.
Capital expenditures for equipment include machinery, furniture and fixtures, computers, and vehicles used in the production and distribution of goods and services. Expenditures for machinery and equipment which are housed in structures and can be removed or replaced without significantly altering the structure are classified as machinery and equipment.
New equipment consists of machinery and equipment purchased new and equipment produced in the company for use by the company. Used equipment is secondhand machinery and equipment.
OTHER CAPITAL EXPENDITURES
"Other" capital expenditures refers to depreciable and amortizable assets which companies could not classify as structures or equipment because of recordkeeping practices or difficulties interpreting the definitions of structures and equipment.
Capital leases consist of new assets acquired under capital lease arrangements entered into during the year. Capital leases are defined by the criteria in the Financial Accounting Standards (FASB) Number 13.
CAPITALIZED COMPUTER SOFTWARE
Capitalized computer software expenditures consist of costs of materials and services directly related to the development or acquisition of software; payroll and payroll-related costs for employees directly associated with software development; and interest cost incurred while developing the software. Capitalized computer software is defined by the criteria in Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.
Prepackaged software is purchased off-the-shelf through retailers or other mass-market outlets for internal use by the company and includes the cost of licensing fees and service/maintenance agreements.
Vendor-customized software is externally developed by vendors and customized for the company's use.
INTERNALLY DEVELOPED SOFTWARE
Internally developed software is developed by the company's employees for internal use and includes loaded payroll (salaries, wages, benefits, and bonuses related to all software development activities).