1. Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. It is often used to undertake new projects or investments by the firm. This type of outlay is also made by companies to maintain or increase the scope of their operations (investorpedia). 2. Capitalizing an expense means you don't offset your revenue against the expense in the year you purchased or built it. Instead you list the purchase as an asset on your balance sheet and then each year (through depreciation) you offset revenue on your income statement against that year’s depreciated amount. Contrast with operational expense.