Accounting for Capital Expenditures - Financial Accounting

The video tutorial explains capital expenditures, which are costs that enhance an asset's value or extend its useful life. It discusses the importance of classifying these expenditures to determine their financial recording. The tutorial covers two main classifications: improving asset quality and extending useful life, providing examples for each. It concludes with a recap and a preview of the next video, which will include practical examples.

What is the primary purpose of capital expenditures?

• To increase employee salaries

• To cover daily operational costs

• To extend the useful life or enhance the productivity of an asset

• To pay off company debts

How are capital expenditures that improve the quality of an asset recorded?

• As a liability

• As a separate expense

• As an increase in the asset's historical cost

• As a reduction in accumulated depreciation

Why is it important to classify capital expenditures correctly?

• To decide on employee bonuses

• To manage cash flow effectively

• To determine the correct accounting treatment

• To ensure accurate tax reporting

Which of the following is an example of extending the useful life of an asset?

• Replacing a vehicle's motor

• Painting a building

• Adding a trailer hitch to a truck

• Installing a new air conditioner

What happens to the capital expenditure cost if it extends the useful life of an asset?

• It is expensed immediately

• It is shown as a reduction in accumulated depreciation

• It is added to the asset's historical cost

• It is recorded as a separate liability