No clear line distinguishes capital expenditures (assets) from revenue expenditures (expenses); therefore, it requires managers to exercise judgment in making a subjective decision.

Question

Quizplus · Accepted Answer

This statement is true. There is no objective criteria to distinguish between capital expenditures (which are recorded as assets on the balance sheet) and revenue expenditures (which are recorded as expenses on the income statement). As a result, managers must use their own judgment to determine how to classify expenditures.

No Clear Line Distinguishes Capital Expenditures (Assets) from Revenue Expenditures