Buying a house can be described as which type of accounting activity?

• A. Managerial accounting
• B. Capital expenditure
• C. Financial accounting
• D. Tax accounting

Answer: (B)

Verified step by step guidance

1. Understand the context of the question: Buying a house is a financial decision that involves the allocation of resources for a long-term asset. This is important for categorizing the type of accounting activity.
2. Review the definitions of the accounting activities mentioned: Managerial accounting focuses on internal decision-making, financial accounting deals with reporting financial information to external parties, tax accounting involves compliance with tax laws, and capital expenditure refers to spending on acquiring or improving long-term assets.
3. Identify the key term 'capital expenditure': Capital expenditure is a type of financial activity where funds are used to purchase or upgrade physical assets like property, equipment, or buildings. Buying a house fits this definition as it involves acquiring a long-term asset.
4. Relate the activity to financial accounting: Financial accounting records and reports transactions, including capital expenditures, to external stakeholders such as investors or creditors. Buying a house would be recorded as a capital expenditure in financial accounting.
5. Conclude that buying a house is primarily categorized as a capital expenditure, which is recorded under financial accounting activities, rather than managerial or tax accounting.