Imagine you’re holding a raw coconut. To most people, it’s just a fruit. But to an accountant preparing financial statements, that same coconut could be classified differently depending on its purpose—either as consumer goods sold directly to a shopper or as capital goods used in producing bottled coconut water.
This subtle distinction highlights a key concept: Capital goods are tools and assets businesses use to operate and grow, while consumer goods are products individuals buy for personal use.
In this article, you’ll discover what capital goods are, how they differ from consumer goods, and why they matter to your business. We’ll explore various types—ranging from machinery and vehicles to software, fixtures, and buildings—as well as real-world examples of capital goods, and how businesses account for these important assets.
What are capital goods?
Capital goods are the tangible and intangible assets businesses rely on to produce goods, deliver services, and support business operations. Unlike products sold directly to consumers, these assets help companies run efficiently and bring products to market.
Examples of capital goods can include:
- Manufacturing equipment
- Office buildings
- Inventory systems
- Delivery vehicles
- Ingredients
- Specialized tools and machinery
Take Clevr Blends, a direct-to-consumer superfood latte brand. Founder Hannah Mendoza’s capital goods shows how these assets evolve with a business:
- Early stage: Commercial blenders, a delivery van, oat milk for product development
- Growth stage: Packaging equipment, inventory management software, warehouse shelving—and yes, still plenty of oat milk
Some capital goods lose value over time (like vehicles), while others are consumed during production (like ingredients). What matters is how they support your business’s ability to create and deliver products.
Capital goods vs. consumer goods
Understanding this difference matters for more than just accounting—it affects how you plan production, manage taxes, promote your products, and classify goods in trade data.
The distinction can be tricky because the same item might be either. A laptop could be a consumer good for personal use or a capital good for your business. The key difference? How and why you use it.
Here’s how capital goods and consumer goods differ across key areas:
Who buys them
Capital goods: Businesses, manufacturers, and organizations buy these to support operations and production. Every capital investment helps drive economic growth.
Consumer goods: Individuals and households purchase these for daily needs, entertainment, or convenience—not to make money or run a business.
Who uses them
Capital goods: The end users are typically businesses or professionals. Think employees using tools, drivers operating delivery vehicles, or chefs working with commercial ovens.
Consumer goods: Individual purchasers or their family members use these directly—not to create something else or support commercial activities.
Their purpose
Capital goods: These are factors of production that help create other goods or services.
Consumer goods: These are finished products for personal use and enjoyment.
The same item can play both roles depending on how you use it. Your car is a consumer good when you drive to the grocery store, but it becomes a capital good if you use it to deliver products to customers.
Products can also switch roles over time. A commercial oven serves as a capital good in a restaurant kitchen. But when that restaurant closes and sells the oven to a homeowner, it becomes a consumer good.
Some items serve double duty. A rideshare driver’s car handles both client rides and family errands. In cases like this, businesses typically count the business-use portion as a capital good and treat personal use separately.
How they’re marketed
Capital goods: Sold through business-to-business (B2B) channels, these products are marketed based on functionality, durability, return on investment, and operational benefits.
Consumer goods: Marketed to individuals through business-to-consumer (B2C) channels, focusing on lifestyle appeal, convenience, price, and personal benefits.
How long they last
Capital goods: Built for durability and ongoing use, these typically last years. Companies track their depreciation as fixed assets on financial statements.
Consumer goods: Designed for shorter-term use, many are disposable or frequently replaced. They rarely appear on financial statements beyond the initial purchase.
Real-world example: Pastreez bakery
Let’s see how this works in practice. Pastreez, an online French bakery, sells macarons and other sweets. Their macarons are consumer goods—marketed to individuals for parties or gifts, meant to be eaten, with a short shelf life.
But producing and shipping those macarons requires various capital goods:
- Ingredients like flour and sugar that get used up during baking
- Packaging materials that become part of the cost of goods sold
- Commercial ovens and mixers that depreciate over time
- Shopify store software for managing orders and customer relationships
Each type of capital good serves a different role in helping Pastreez create and deliver their consumer products to customers.
Why are capital goods important?
Capital goods power your business operations. They help you produce what customers want to buy, often more efficiently and at a larger scale than you could manage without them.
Some capital goods are absolute necessities—you can’t bake bread without ovens or print graphic tees without printing equipment. Others aren’t required but can give you a significant advantage over competitors.
Here’s why capital goods matter for your business and the broader economy:
They enhance production
The right capital goods can transform how you operate. They streamline workflows, increase output, and support better production planning. This means you can produce goods and services faster, with higher quality, and at greater scale.
Think about how a commercial mixer helps a bakery produce consistent batches compared to hand-mixing everything. The improvement in speed and quality is dramatic.
They boost competitiveness
Capital goods give you an edge over competitors. Bain & Company research shows that “factory-of-the-future” upgrades like digital twins and advanced robotics can lift output by 30% to 50%. Companies that integrate these tools into leaner operations often see improved profit margins and market share.
They create jobs
Capital goods don’t replace workers—they often create new opportunities. Businesses need skilled people to operate, maintain, and manage these tools and systems. A technician servicing factory equipment, a developer customizing software, or an operator running specialized machinery all represent jobs that exist because of capital investments.
They encourage innovation
Research and development software, prototyping equipment, and testing tools make it easier to experiment with new ideas. These capital goods help you test concepts quickly and bring innovative products to market faster than competitors who lack these resources.
They facilitate market growth
By helping you scale production and reach new customers, capital goods expand your potential market. This individual growth contributes to broader economic expansion as more businesses can serve more customers effectively.
They support infrastructure development
Large-scale capital goods like buildings, power systems, and logistics equipment create the infrastructure that businesses and communities depend on. Your delivery trucks need roads, your factory needs reliable electricity, and your customers need accessible storefronts.
Types of capital goods
Capital goods fall into several categories based on their physical nature and how long they last in your business.
Tangible assets
These are physical items you can touch—equipment, vehicles, tools, and buildings. This type of asset typically lasts several years and appears on your balance sheet as fixed assets.
Tangible assets wear out over time, so their value decreases through depreciation. Your accounting team tracks this depreciation to show how much value each asset contributes annually and what it costs to maintain your production capacity.
Examples include manufacturing equipment, delivery trucks, office furniture, and warehouse space.
Intangible assets
Not all capital goods are physical. Intangible assets are non-physical resources like software, intellectual property, patents, and data systems that support your operations or enhance productivity.
Unlike physical assets that wear out, intangible assets don’t degrade from use. However, they can lose value as technology evolves or licenses expire. You typically spread their cost over time based on how long you expect to use them.
Shopify’s platform is an intangible capital good that online retailers use to sell products, process transactions, and promote their business. While you don’t physically depreciate software like Shopify, businesses often recognize its cost gradually through subscription fees or licensing arrangements.
Note: If you’re launching or scaling your online store, you can start a free trial of Shopify to explore how it fits into your business infrastructure.
Fixed assets
Fixed assets are capital goods you keep for more than a year and use in daily operations. Unlike inventory that you sell to customers, fixed assets stay with your business and help it operate and grow.
Fixed assets can be tangible (like equipment or buildings) or intangible (like patents or domain names). They’re recorded on financial statements with depreciation that reflects how their value changes over time.
A retail store’s point-of-sale system and warehouse shelving are both fixed capital goods that support operations for many years.
Circulating assets
Circulating capital goods are consumed or replaced within a single production cycle—usually less than a year. These include raw materials, packaging supplies, fuel, ingredients, and other items used up during production or daily operations.
Because circulating assets are used quickly, you record their cost immediately as part of the cost of goods sold or operating expenses rather than depreciating them over time.
Understanding the difference between circulating and fixed assets helps you track inventory needs, manage cash flow, and report expenses accurately.
Capital goods examples
Capital goods come in many forms, from machines to materials to software. Here are common examples businesses invest in, organized by how they’re used across different industries and functions.
Machinery and equipment
Machinery and equipment make up the broadest category of capital goods. These are the tools that power various business functions: manufacturing, resource extraction, communication, and more.
Examples include:
- Industrial robots
- Assembly lines
- Processors
- Kitchen appliances
- Agricultural machinery
- Computer hardware and data servers
- Telephone systems
- Landscaping tools
Raw materials and components
Raw materials and components are the building blocks of your products. These materials, ingredients, or inputs get incorporated into finished goods or used to power equipment and vehicles.
Examples include:
- Screws, nuts, bolts, and other hardware
- Cooking ingredients like flour, oil, sugar, and salt
- Fabric, leather, and other upholstery materials
- Gasoline
- Wood
- Adhesives
Vehicles
Vehicles become capital goods when they help move materials, components, or finished products through your supply chain.
Examples include:
- Cars for transporting workers to work sites
- Warehouse forklifts
- Delivery trucks
- Cargo vans
- Refrigerated trucks
- Utility trucks
- Tanker trucks
- Cranes
Software
Software qualifies as a capital good when you use it in production processes or operations. Unlike consumer software for personal use, business software becomes part of your organizational infrastructure, boosting efficiency and competitiveness.
Examples include:
- Enterprise resource planning (ERP) systems
- Customer relationship management (CRM) software
- Computer-aided design (CAD) software
- Financial management and accounting tools
- Manufacturing execution systems (MES)
- Supply chain management software
- Data analytics and business intelligence (BI) software
- Social media management programs
Facilities and structures
Facilities and structures provide physical spaces for administration, operations, storage, and other business processes.
Examples include:
- Manufacturing plants
- Warehouses
- Office spaces and buildings
- Retail storefronts
- Distribution centers
- Data centers
Fixtures and furniture
Fixtures are permanent installations within a building, while furniture includes movable items for seating, storage, and work surfaces. Together, they create the physical infrastructure that supports business activities.
Examples of fixtures include:
- Lighting systems
- Plumbing
- Built-in cabinetry
- Partitions
- HVAC systems
Examples of furniture includes:
- Desks
- Chairs
- Conference tables
- Shelving units
- Reception area seating
- Decorative elements like artwork and plants
Accounting for capital goods: depreciation and depletion
When you buy capital goods (reducing your short-term working capital), you won’t see their full cost hit your financial statements right away. Instead, most businesses use accrual accounting methods like depreciation and depletion to track these assets’ value over time.
This approach helps you allocate costs accurately—not just for tax reporting and financial statements, but also for understanding how to price your products to reflect the true cost of production.
Depreciation
Depreciation tracks how capital goods lose value over time due to wear and tear, becoming obsolete, or other factors.
Rather than deducting the full purchase cost in year one, you spread that expense over the asset’s useful life. This appears as a depreciation expense on your income statement and balance sheet, helping you match costs with the revenue they help generate.
For example, if you buy a $10,000 delivery truck with a 10-year useful life, you’d typically record $1,000 in depreciation expense each year rather than taking the full $10,000 hit upfront.
Depletion
Depletion tracks the cost of natural resources—like crops, timber, or minerals—as you use them up in operations. This method is especially common in food, farming, and energy industries where natural resources drive production.
Even when you pay for resources upfront, you don’t expense the full amount immediately. Instead, you record costs gradually based on actual usage. A bakery that buys flour in bulk might spread that cost over several months as the flour gets used in production.
This approach gives you a clearer picture of your true production costs and helps with cash flow planning.
💡 Simplify your accounting with Shopify’s built-in financial reporting tools and integrations like QuickBooks and Xero. Track capital expenses, depreciation, and inventory depletion in one place to keep your financial statements accurate.
Capital goods FAQ
What is the definition of capital goods?
Capital goods are assets that companies use to produce goods, deliver services, or support operations. They include both tangible and intangible items that aren’t directly sold to consumers.
What is the difference between capital and consumer goods?
Capital goods are used by companies to create products or services. Consumer goods are the finished products that individuals buy for personal use.
What are some examples of capital goods?
Examples include manufacturing equipment, computer hardware, raw materials like flour or fabric, delivery vehicles, business software, facilities, and office furniture.
Are capital goods final goods?
No, capital goods aren’t final goods because they’re used to produce other goods and services. Consumer goods are considered final goods because they’re intended for end use by individuals.
Is a car a capital good?
It depends on how it’s used. A car used for business deliveries or rideshare services is a capital good. The same car used for personal transportation is a consumer good.
