Capital goods and consumer goods are terms used to describe goods based on their use. A capital good is any good used for production. Consumer goods are those used by consumers and have no future productive use.
The same physical good could be either a consumer or capital good, depending on how the good is used. For example, a riding lawn mower purchased by a land owner to mow the yard is a consumer good; the same lawn mower purchased by a lawn care business is a capital good.
- Capital goods are man-made products used by a business to produce consumer or other capital goods.
- Consumer goods are products used by consumers.
- Capital goods include items like buildings, machinery, and tools.
- Examples of consumer goods include food, appliances, clothing, and automobiles.
- The same physical good could be either a consumer or capital good, depending on if it's used by a business in the production process or purchased for consumption and not intended for production or profit.
Capital goods are any tangible asset used by a business to produce goods or services for consumer goods or for use by other businesses. They are generally durable goods that can be used more than once. The most common capital goods are property, plants, and equipment (PPE). Natural resources not modified by human hands are not considered capital goods.
Businesses accumulate capital goods and put them to use to produce the goods and services they sell. In other words, capital goods make it possible for companies to produce goods, often at a higher efficiency level.
A consumer good is any good purchased for consumption and not used later to produce another consumer good. Consumer goods are sometimes called final goods because they end up in the hands of the consumer or the end-user.
Examples of consumer goods include food, clothing, vehicles, electronics, and appliances. Consumer goods fall into three categories: durable goods, nondurable goods, and services. Durable goods have a lifespan of more than three years and include motor vehicles, appliances, and furniture. Nondurable goods have a lifespan of fewer than three years. This includes items such as food, clothing, gasoline, and services like haircuts, oil changes, and car repairs.
Consumer goods can be classified in four ways:
- Convenience goods: Goods consumed and purchased regularly, such as milk.
- Shopping goods: Goods that require more thought and planning and include appliances and furniture.
- Specialty goods: Goods that are more expensive and cater to a niche market. Items such as jewelry are specialty goods.
- Unsought goods: Goods purchased by some consumers to serve a specific need. Life insurance is an unsought good.
The sale of most consumer goods is overseen by the Consumer Product Safety Act passed by Congress in 1972. The act created the U.S. Consumer Product Safety Commission, which regulates product safety and has the authority to seek recalls from manufacturers and ban products under certain circumstances.
- The purpose of capital goods is to help produce other products. They are meant to be used for production, while consumer goods are bought for personal and final consumption.
- Businesses, companies, and manufacturers buy capital goods. Consumer goods are bought by consumers.
- Consumer goods are characterized by having a direct demand, as they directly satisfy the needs of consumers. On the other hand, capital goods have a derived demand since they indirectly satisfy consumer needs.
| personal consumption | inputs for production |
| consumers | businesses |
| B2C | B2B |
| clothing, food, milk, furniture, cars, gasoline | raw textiles, unrefined wheat, milking machinery, tractors, crude oil |
A capital good is a man-made product that is used in production. A pre-built computer purchased by a graphics design business is a capital good. Additionally, the components of that computer are capital goods because they were used to build a computer designed for commercial use.
The same manufacturer could sell the same computer for home use. This computer would be a consumer good, even if it had the same components as the one sold to the graphics design business. Capital and consumer goods can be the same or different products; the distinction lies in how the goods are used and who uses them.
Capital goods are the assets used by companies and manufacturers in the process of production. Capital stock, on the other hand, refers to the total physical capital available in a company (in the form of plant, property, equipment, machinery, etc.). Capital stock can also refer to the amount of common and preferred shares a company is authorized to issue.
Yes, durable goods can be capital goods (man-made, durable items used by businesses to produce goods and services, like tools, buildings, vehicles, machinery, and equipment), as well as consumer goods. Consumer goods that have a long life span (i.e., over three years) and are used over time are considered durable goods. Examples include vehicles, appliances, and technology.
A house can be a capital good if it's used by a business to produce goods and services. Just like tools, vehicles, machinery, and equipment, buildings can also be capital goods. A clear example would be a hotel. In most scenarios, however, a house would be a consumer good because it is purchased primarily to reside in.
Fast-moving consumer goods (FMCG) are cheaper products that sell quickly such as milk, gum, fruit and vegetables, soda, beer, and common drugs like aspirin.
The stuff you buy in stores or online are consumer goods. These are intended for personal use or consumption and are sold by businesses to individuals or households. Capital goods, on the other hand, are those goods that businesses buy in order to make other goods -- including consumer goods. These would include things like machinery, raw materials, and specialized vehicles used on the job.
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Capital Goods
By
Alicia Tuovila
Alicia Tuovila is a certified public accountant with 7+ years of experience in financial accounting, with expertise in budget preparation, month and year-end closing, financial statement preparation and review, and financial analysis. She is an expert in personal finance and taxes, and earned her Master of Science in Accounting at University of Central Florida.
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Updated March 10, 2022
Reviewed by
Amy Drury
Reviewed by Amy Drury
Full BioAmy is an ACA and the CEO and founder of OnPoint Learning, a financial training company delivering training to financial professionals. She has nearly two decades of experience in the financial industry and as a financial instructor for industry professionals and individuals.
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Fact checked by Ryan Eichler
Full BioRyan Eichler holds a B.S.B.A with a concentration in Finance from Boston University. He has held positions in, and has deep experience with, expense auditing, personal finance, real estate, as well as fact checking & editing.
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What Are Capital Goods?
Capital goods are physical assets that a company uses in the production process to manufacture products and services that consumers will later use. Capital goods include buildings, machinery, equipment, vehicles, and tools. Capital goods are not finished goods, instead, they are used to make finished goods.
Key Takeaways
- Capital goods are physical assets that a company uses in the process to manufacture products and services that consumers will later use.
- Capital goods include fixed assets, such as buildings, machinery, equipment, vehicles, and tools.
- Capital goods are also produced for the service sector, including hair clippers used by hairstylists and coffee machines for coffee shops.
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Capital Goods
Understanding Capital Goods
Capital goods are called tangible assets because they are physical in nature. Capital goods are assets that companies use to produce products that other businesses can use to create finished goods. Manufacturers of automobiles, aircraft, and machinery fall within the capital goods sector because their products are subsequently used by companies involved in manufacturing, shipping, and providing other services. In other words, capital goods don't create satisfaction (called utility in economics) for the buyer per se but instead are used to produce the final product, which does create satisfaction.
Depreciation
Capital goods that a business does not consume within a single year of production cannot be entirely deducted as business expenses in the year of their purchase. Instead, they must be depreciated over the course of their useful lives, with the business taking partial tax deductions spread over the years that the capital goods are in use. This is done through accounting techniques such as depreciation.
Depreciation accounts for the annual loss of the tangible asset’s value during the course of its useful life. Depreciation helps a company generate revenue from an asset by expensing only a portion of it each year. Expensing the asset means the annual cost reduces profit or net income, which creates a lower taxable income and provides the company with tax savings.
Depletion
If a company is extracting natural resources, such as timber, depletion is an accounting technique utilized for spreading out the cost of those natural resources as they are depleted or used up by a business. Depletion can be calculated by using either cost depletion or percentage depletion.
For example, when deducting the cost of standing timber, taxpayers must use the cost depletion technique, based on the total number of recoverable units and the number of units sold during the tax year. Percentage depletion assesses the cost of the materials as a percentage of the company’s gross income during a given year.
Types of Capital Goods
Capital goods are not necessarily fixed assets, such as machinery and manufacturing equipment. The industrial electronics industry produces a wide variety of devices, which are capital goods. These can range from small wire harness assemblies to air-purifying respirators and high-resolution digital imaging systems. Capital goods are also produced for service businesses. Hair clippers used by hairstylists, paint brushes used by painters, and musical instruments played by musicians, are among the many types of capital goods purchased by service providers.
Core capital goods are a class of capital goods that excludes aircraft and goods produced for the Defense Department, such as automatic rifles and military uniforms. The Census Bureau’s monthly Advance Report on Durable Goods Orders includes data on purchases of core capital goods, also known as Core CAPEX, for capital expenditure. This information is closely followed as a forward-looking indicator of the degree to which businesses plan to expand. Durable goods are products with an expected useful life of at least three years.
Capital Goods vs. Consumer Goods
Consumer goods are the finished products that consumers buy as a result of the production process. Although consumer goods have different classifications, examples of consumer goods include milk, appliances, and clothes.
Conversely, capital goods are not usually sold to consumers but instead are used to produce other goods, which might be sold to consumers. However, there are capital goods that can also be consumer goods, such as airplanes, which are used by airlines but also by consumers.
Examples of Capital Goods
Below are some examples of capital goods that are used in the various industries as well as examples of goods that can be both capital and consumer goods.
Capital Goods
- Factories or assembly line equipment used to manufacture cars and trucks
- Machines and technology
- Types of infrastructure, such as trains and cable or broadband lines
- Coffee machines used by a coffee shop
Capital and Consumer Goods
- Automobiles used by a delivery company would be a capital good, but for a family, they would be a consumer good.
- Ovens used by a restaurant would be a capital good but can also be a consumer good.
- Computers can be used by companies but also by consumers.
- Landscaping equipment can be used by landscaping companies and by consumers.
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
U.S. Census Bureau. "Manufacturers’ Shipments, Inventories, & Orders."
Related Terms
What Are Consumer Goods?
Consumer goods are the products purchased by the average consumer.
more
Understanding Depreciation
Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life to account for declines in value over time.
more
What Is Inventory?
Inventory is the term for merchandise or raw materials that a company has on hand.
more
What Is the Amortization of Intangibles?
The amortization of intangibles is the process of expensing the cost of an intangible asset over the projected life of the asset.
more
What Is Cost Accounting?
Cost accounting is a form of managerial accounting that aims to capture a company's total cost of production by assessing its variable and fixed costs.
more
Gross Margin Definition
The gross margin represents the amount of total sales revenue that the company retains after incurring the direct costs (COGS) associated with producing the goods and services sold by the company.
more
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