What determines whether a purchase should be capitalized rather than expensed?

The correct choice centers on the useful life of the asset in question. When evaluating whether a purchase should be capitalized or expensed, one of the key criteria is the duration for which the asset is expected to benefit the company. If an asset has a useful life greater than one year, it is generally capitalized. This means that instead of recognizing the entire cost as an expense in the period the purchase occurs, the cost is allocated over the asset’s useful life through depreciation.

Capitalizing an asset allows a business to spread the expense over time, matching the cost of the asset with the revenue it generates. This aligns with the matching principle in accounting, which aims to ensure that expenses are recorded in the same period as the revenues they help to generate.

Other options relate to shorter-term benefits or operational costs, but they do not consider the longevity of the asset in the same way. The capitalization of assets serves a vital role in accurately representing the financial position of a company, as it reflects long-term investments in productive resources.