What Is a Capital Expenditure?

Lodging-industry financial executives have yet to achieve consensus on the criteria for identifying capital expenditures. When, in the absence of specific IRS guidelines or other accounting norms, those financial experts are uncertain whether to categorize an expenditure as operating (revenue) expenses or a capital expenditure, they use a variety of criteria to make that determination, most often using cost as the deciding factor. Other criteria were used inconsistently by the study participants. These included identifying an expense as capital when the purchase is part of property and equipment at the time a hotel is purchased or as part of a hotel renovation; when the useful life of purchase is more than one year or when the improvement prolongs the useful life of the property; when instructed to do so by owners or upper management; and when the improvement increases the earning capacity of the property. The study confirmed a strong desire among respondents for guidelines that will help lodging-industry financial executives determine whether an expenditure is capital in nature.