Which statement correctly describes a capital item in accounting?
Correct answer: B. It provides a benefit extending beyond the current accounting period
- A. It is consumed entirely in the current reporting period
- B. It provides a benefit extending beyond the current accounting period
- C. It is always paid in cash immediately
- D. It is recorded only when revenue is received
Explanation
Capital expenditure creates or improves a long-term resource whose benefits extend beyond the current period. Payment method and the timing of revenue collection do not by themselves determine whether an item is capital.
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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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