Capital Expenditures Top of Mind for Iowa Manufacturers
Iowa manufacturers are poised for growth in Q2 2023, according to the latest ABI Quarterly Business Survey. The survey reveals that 81% of respondents plan capital expenditures, a significant increase from Q1. Sales expansion is expected by 51% of respondents, up from 23% in Q1, while 67% predict stable workforce numbers.
ABI President, Mike Ralston, emphasizes the importance of capital expenditures for business success and future growth. Despite supply chain challenges, optimism for the remainder of 2023 remains high among Iowa manufacturers.
What is a capital expenditure?
According to the Corporate Finance Institute, “A capital expenditure (“capex” for short) is the payment with either cash or credit to purchase long-term physical or fixed assets used in a business's operations. The expenditures are capitalized on the balance sheet (i.e., not expensed directly on a company’s income statement) and are considered an investment by a company in expanding its business.”
Types of Capital Expenditure
Capital expenditures (CapEx) include investments in long-term assets. Common types are:
- Buildings and Property: Purchasing or upgrading buildings or property, often financed through secured debt or mortgages. Repairs and capital upgrades are distinguished.
- Equipment Upgrades: Replacing or upgrading obsolete or worn-out machinery in industries like manufacturing.
- Software Upgrades: Costs for upgrading or purchasing software, including internal research and development expenses.
- Computer Equipment: Technology assets like servers, laptops, and peripherals with a useful life greater than one year.
- Vehicles: Company fleets for distribution or services, purchased or financed with debt.
- Salvage Value: Expected recovery value for assets like vehicles at the end of their useful life.
- Intangible Assets: Non-physical assets, such as patents or licenses, can also be considered capital expenditures.
How are capital expenditures reported?
Capital expenditures appear as assets on the balance sheet. Their acquisition can be offset by cash, debt, or equity. As they're used, they're depreciated, with depreciation reported on both the income statement (as an expense) and the balance sheet (as a contra asset reducing net asset value).
If you are planning on a capital expenditure before your year-end close, reach out to us to ensure that you are taking advantage of all available tax strategies and complying with tax laws and regulations.