It understates net income and overstates expenses. Contrary to operating expenses, which are listed on your income statement, capital expenditures are always listed as an investment on your balance sheet and will be mentioned in the investing activities part of your cash flow statement.
An income statement does not instantly reflect money spent on CAPEX items. Instead, it is considered as an asset on the balance sheet and is written off over a period of years as a depreciation expenditure, starting in the year after the item is purchased. Although a capital expenditure's true cost is not immediately reflected on the income statement, depreciation steadily affects earnings during the asset's useful life. Key Learnings. Payments paid for products or services that are capitalized on a company's balance sheet as opposed to being expensed on the income statement are known as capital expenditures.
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