Final answer:
Expenditures must relate to a separate and distinct asset to be considered for capitalization. Investment expenditures on assets such as equipment, structures, and software are examples of capital assets since they provide future economic benefits. Money does not qualify as capital but can be used to purchase capital goods.
Step-by-step explanation:
Expenditures must relate to the creation or acquisition of a separate and distinct asset to be subject to capitalization within a business's accounting practices. Capitalization involves recording an expense as a long-term asset, rather than expensing it immediately, because the expense is expected to provide economic benefits over multiple periods.
Investment expenditure includes spending on new capital goods, such as producer's durable equipment and software, nonresidential structures like factories and offices, changes in inventories, and residential structures like homes and apartments. These investments represent expenditure on tangible and intangible items that are expected to produce future benefits, thus satisfying the two criteria that classify a resource as capital: being used in the production of goods and services and having a life longer than the period of accounting.
Money, on the other hand, is not considered capital because it cannot directly produce other goods. However, it is a form of financial capital that can be used to purchase capital goods. Understanding these distinctions is essential for making informed decisions regarding capital investment and the capitalization of expenditures in a business.