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Capital Asset: Definition and Meaning
Definition
A capital asset is a long-term asset, such as equipment, vehicles, buildings, or machinery, that a business uses in operations rather than sells in the ordinary course of business.
Why It Matters
Capital assets often require significant investment and may affect financing, depreciation, insurance, maintenance, tax planning, and cash-flow decisions. The accounting treatment for a purchase may differ from the treatment for a repair, routine maintenance, or short-term operating expense.
Businesses should maintain records of asset cost, acquisition date, useful life, depreciation, financing, location, and disposal information.
Example
A contractor buys an excavator for use on projects. The excavator may be recorded as a capital asset and depreciated over its estimated useful life.
Related Terms
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