Markets · 6 pages · 12 min
Buying plant and equipment uses cash now, while the cost hits profit only gradually through depreciation.
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Capital spending buys assets that will serve many periods, so the cash goes out at purchase while the income statement recognizes the cost later as depreciation. A firm can be profitable on that slow schedule and still be short of cash because the machines, trucks, or buildings were paid for up front. The opening covers the asset is paid up front, profit records it slowly, and investing cash leaves early.
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