What is a Capital Asset?

A capital assets is any element of capital, either of equipment or of production, that will be used as part of the production process of another good and will become part of the capital of a company. Capital assets are not destined for direct consumption by the client (as is the case for consumer goods).

Back to: ACCOUNTING, TAX, & REPORTING

How to Account for Capital Assets?

Capital goods form an essential part of the accumulation of capital that (in a capitalist system) allows for the production of more goods. This type of property would belong to what we commonly call "physical capital. It is important not to confuse capital goods with intermediate goods since both are part of a production process but their duration and consumption is different. Capital assets have a longer duration and are more dependent on their own useful life than on production cycles. Intermediate goods will be transformed during the process to be converted into consumer goods. The production of capital goods in a country has traditionally been an unequivocal sign of economic development. It signals the ability to have its own technology to produce manufactured goods (with greater value added than the raw materials. This activity, in addition to generating large volumes of employment and investment, is often accompanied by the development of a strong financial sector to support its activities, as well as other auxiliary services. Therefore, it is usually considered a pillar of the productive system in most developed countries.