Puff’s Trucking Company paid $90 for an oil change on a truck. Puff's should report this expenditure as a:

Question

Puff’s Trucking Company paid $90  for an oil change on a truck. Puff's should report this expenditure as a:

BlackTom AI · Accepted Answer

In preparing financial statements, we distinguish between capital expenditures and immediate (operating) expenses based on the nature and benefit period of the purchase.
Option 1: 'capital expenditure.' A capital expenditure is a cost that provides a future economic benefit beyond the current year, such as acquiring or improving long-term assets like equipment, buildings, or vehicles. An oil change on a truck is a routine maintenance service that keeps an asset in ordinary running condition and does not extend the asset’s life or add to its value. Therefore it does not meet the criteria for capitalization as a capital expenditure.
Option 2: 'immediate expense.' An immediate expense, also called an operating expense, is a cost that is necessary for daily operations and is expensed in the period incurred. Since the oil change is a routine maintenance service that maintains the truck’s operation and does not improve or extend the asset, it should be expensed now rather than capitalized.
To compare the two: capitalization would only be appropriate if the purchase or improvement created a longer-term asset or significantly extended the life or value of the asset. Routine maintenance costs do not meet that threshold, so recognizing the cost as an immediate expense aligns with standard accounting practices.
Thus, the reasoning supports treating the oil change as an immediate expense rather than a capital expenditure.

Introduction to Financial Accounting M5: Quiz

Puff’s Trucking Company paid $90 for an oil change on a truck. Puff's should report this expenditure as a:

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