How is a capital expenditure defined?

A capital expenditure is defined as funds that are used to acquire, upgrade, or improve physical assets such as property, buildings, machinery, and equipment. This type of expenditure is significant because it is intended to provide benefits to the business over a long period, often extending beyond one accounting period. By investing in these physical assets, a company can expand its ability to generate revenue and improve its operational efficiency.

In contrast, the other choices relate to different types of expenses or investments. Temporary supplies and employee salaries represent operational expenditures, which are costs that a business incurs in its day-to-day functioning. Investments in stocks and bonds pertain to financial investments rather than capital expenditures aimed at enhancing the company’s physical or operational capacity. Understanding the distinction between capital expenditures and other expenditures is crucial for accurate financial reporting and analysis in financial accounting.