In one sentenceSpending on buying or improving an asset in a way that increases its benefit for more than a year; it is recorded as an asset and then depreciated, instead of being charged to the year's expenses.
Simply put
The deciding question: does the benefit extend beyond one year? Buying a new oven, adding a floor, or installing a cooling system that extends the building's life: all of these are capital.
Recording it as an asset spreads its cost over the years that benefit from it, so the profit of the purchase year does not look much lower than it really is.
Worked example
A restaurant bought an oven for 35,000 SAR that it expects to work for 7 years with no residual value.
Recorded as a fixed asset at a cost of35,000 SAR
Useful life7 years
Amount charged to expenses each year: 35,000 ÷ 75,000 SAR
Don't confuse it with
Revenue expenditureRevenue expenditure keeps the asset as it is or serves a single year, so it is charged to expenses immediately.
in FullScreen ERP
The system adds subsequent costs to the asset and recalculates its depreciation. Fixed assets