Which statement best defines a capital expense?

• A. A recurring monthly cost that does not add long-term value.
• B. An expenditure for an asset with a useful life greater than one year that increases value or extends useful life.
• C. A one-time expense that is fully deductible in the year incurred.
• D. A consumable supply with a short-term benefit.

Answer: (B)

Capital expenses are funds spent to acquire or upgrade assets that will benefit the business for more than one year and either increase value or extend the asset’s usable life. This is different from everyday running costs, which are expensed as incurred and do not create long-term assets.

The best choice describes spending on an asset with a useful life beyond a year that adds value or extends life. For example, buying new equipment or upgrading hardware typically qualifies as a capital expense because the asset will be used for multiple years and is capitalized on the balance sheet.

The other options reflect operating expenses: recurring costs that don’t create a lasting asset, or a one-time cost that’s fully deductible in the year it’s incurred, or a consumable with short-term benefit. These are treated as expenses in the period and not capitalized.