Home › US CMA Part 2 › Financial Management › Financial Management and Securities Markets › What makes a spending item a capital expenditure?
What makes a spending item a capital expenditure?
AIts benefits extend beyond one year
BIt is paid for in cash and not on credit
CIt is under the annual budget limit set
DIt appears in the selling expenses total
Answer & Solution
Correct answer: A. Its benefits extend beyond one year
1. Capital expenditures are investments in physical assets such as land, buildings, machinery, equipment and information systems.
2. What marks them out is that their benefits extend beyond one year, while operating expenses produce benefits within a year.
3. A printing press with a usable life of seven years is a capital expenditure and appears as a fixed asset, while the paper and ink are expenses.
4. Mergers and acquisitions also count as capital expenditures.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.2 How Organizations Use Funds_
Related questions
Since the Sarbanes-Oxley Act, what do CFOs consider their top priority?How did the NYSE answer the NASDAQ's head start in electronic trading?Under the rules approved in 2012, which falls in the S&P 500 Index trigger the three levelWhat does Regulation FD require of public companies?The Securities Investor Protection Corporation insures each customer's account up to what What is insider trading?What did the 1964 amendment to the Securities Exchange Act of 1934 add to the SEC's powersWhat does the Securities Act of 1933 require of a new securities issue?