Capital expenditure refers to the purchase of long-term assets, while depreciation refers to the gradual reduction in the value of those assets over their useful lives. When a company incurs a capital expenditure, it invests in a long-term asset that generates returns over several years, but as the asset wears down over time, its value decreases, which is known as depreciation. Capital expenditures create assets that are depreciated over time, resulting in an expense that reduces the company's net income.