American Institute of Certified Public Accountants (AICPA) Practice Exam

Capital expenditures are defined as funds used by a company to acquire or upgrade physical assets such as property, buildings, machinery, or equipment. These expenditures are typically long-term investments that are expected to provide economic benefits over a period of time, enhancing the company's capacity or efficiency. For instance, purchasing a new piece of machinery would qualify as a capital expenditure, as it is a significant investment aimed at improving production capabilities.

In contrast, the funds allocated for employee salaries, while significant for operational expenses, do not pertain to the acquisition of long-term physical assets. Similarly, investments made in research and development are aimed at innovation and product development but do not directly relate to the purchase or enhancement of physical property or equipment. Lastly, budget allocated for marketing campaigns represents an operational expense focused on promoting products or services rather than investing in capital assets. Thus, capital expenditures are specifically associated with the acquisition or upgrading of physical assets, making that the defining characteristic.