Phil purchased paint for a building renovation project. This paint is an example of which type of expense?

• A. Operating
• B. Capital
• C. Maintenance
• D. Sunk

Answer: (B)

The main idea is distinguishing capital expenditures from operating and maintenance costs. Painting as part of a building renovation is considered a capital expenditure because it’s part of upgrading or improving the asset and can add value or extend the building’s life. Capital expenditures are capitalized and depreciated over the asset’s useful life. By contrast, operating expenses are day-to-day costs to run the building, maintenance costs are for keeping the asset in good condition without extending life, and sunk costs are past expenses that can’t be recovered. So, painting during a renovation fits as a capital improvement, not a routine operating or maintenance expense.