Which item is normally classified as a capital expenditure?
Correct answer: D. Purchase of a machine for production
- A. Wages paid to factory workers
- B. Routine repairs to office furniture
- C. Electricity used during the month
- D. Purchase of a machine for production
Explanation
Buying a production machine provides benefit over several accounting periods, so it is capital expenditure and is recorded as an asset initially. Wages, electricity and routine repairs are normally revenue expenses.
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About Accounting Principles
Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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