Capital Investment – Purchase of Fixed Assets

Capital Investment: In order to run a business we will require items of a capital nature.

For example, a restaurant will need to make capital investment in a kitchen and all the equipment required for a commercial kitchen as well as the tables, chairs, the soft furnishings and the rest of the items (lighting) that are required to create the atmosphere.

However, while we will have to pay for these items of equipment now, the cost of the capital investment in these items hit the P&L over a period of years via a depreciation journal. The reason for this is that these items will be of economic use for a period of greater than one year, or our average accounting period.

Therefore, while we pay for this now our P&L only gets to see part of this cost each year over it deemed useful economic life. And this decline can be rapid. As recently as 2008 Ireland saw its construction industry shut down overnight.

And the rest is history.