Capital Reserve

  

This term most typically applies within the context of accounting for government, espcially for municipalities. It is a “piggy bank” for the government. The government has a lot of “piggy banks,” as these funds must be used for a specified purpose.

The government taxes our hard-earned income. It then socks the money away with plans to spend it on something that we supposedly need in the future.

On something we need? Yeah, something important...like a new government building, or a parking garage. Governments utilize a different type of accounting referred to as “fund accounting." Governmental accounting is used by the government because, like the government, it sometimes...makes no sense. It's kind of like your mother telling you she can’t pay you your allowance this week because the cash in her wallet is being “reserved." Mommy needs a new pair of shoes.

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Finance: What is Capital Expenditure, i....54 Views

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finance- a la shmoop. what is capex ?funny name kind of sounds like group therapy

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for men trying to quit wearing hats or maybe it's a Space Age head cover [men sit in a circle]

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Michael Phelps will wear on his comeback tour. sadly it's neither of those. capex

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is short for capital expenditure and it simply refers to the spending of capital

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to buy stuff. you know what an expenditure is ie an expense, for example

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when famed surgical glove manufacturer all you need is glove spends money on [man smiles in front of warehouse]

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synthetic rubber for its products, well, the buying of the gallons and gallons of

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rubber is an expense. they generally use that rubber within a short timeframe of

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when they bought it- a month a quarter certainly within the year. so the buckets

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of rubber they buy for their raw material are just a normal expenditure

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or expense. so what makes something a capital expense? well think about it like

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a petty crime versus a capital crime. in a petty crime the criminal will do time

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and be done and move on in life. a capital crime means someone was killed [man walks out of jail]

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whole different level of serious -versus that jaywalking thing -so when a capital

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expenditure comes around well its costs are taken or allocated or amortized over

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long periods of time like years or even decades. you know like a prison sentence.

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so when all you need is glove buys a new robotic rubber gloves machine so that [assembly line shown]

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they no longer have to sew the gloves by hand, that is a capital expense. why

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because it costs a lot of money 10 million bucks in fact ,and because they

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expect to be able to use that thing for 20 years before it wears out and is

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worthless. so they'll spend 10 million dollars in

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cash today of their capital to buy it and then reduce that value by 500 grand

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a year on their balance sheet each year for 20 years. the value of their capital [balance sheet shown]

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expenditure will slowly decline to nothing on their books but it will

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presumably more than pay for itself in saved costs applied to human labor in

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making the gloves. as for actually using the [robot holds up hand]

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however well it'll be a while until we can trust robots with that.

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