Which statement accurately describes capital expenditures versus revenue expenditures?

Which statement accurately describes capital expenditures versus revenue expenditures?

• A. Capital expenditures increase long-term assets and are capitalized.
• B. Revenue expenditures increase long-term assets.
• C. Capital expenditures are expensed in the period incurred.
• D. Revenue expenditures are expensed in the period incurred.

Answer: (A)

Capital expenditures are costs that create or extend the life of a long-term asset. Because they provide benefits over many periods, these costs are added to the asset’s value on the balance sheet and depreciated or amortized over time instead of being expensed right away. Revenue expenditures, on the other hand, are ordinary operating costs that maintain assets or support daily operations and are expensed in the period incurred. So, the statement that capital expenditures increase long-term assets and are capitalized correctly describes the distinction between the two. The other descriptions would misstate the treatment of capital expenditures or mischaracterize revenue expenditures.

Capital expenditures are costs that create or extend the life of a long-term asset. Because they provide benefits over many periods, these costs are added to the asset’s value on the balance sheet and depreciated or amortized over time instead of being expensed right away. Revenue expenditures, on the other hand, are ordinary operating costs that maintain assets or support daily operations and are expensed in the period incurred. So, the statement that capital expenditures increase long-term assets and are capitalized correctly describes the distinction between the two. The other descriptions would misstate the treatment of capital expenditures or mischaracterize revenue expenditures.