What defines capital assets?

Capital assets are defined as assets that provide value over a long period and typically generate income through interest, dividends, or similar returns. The essence of capital assets lies in their ability to contribute continuously to the income stream of an entity, making them crucial for long-term financial planning and investment strategies.

In the context of financial analysis, capital assets are usually used to facilitate ongoing operations or to generate revenue, rather than being purely for resale. This differentiates them from short-term investments and inventory, which are often associated with liquidity and turnover rather than sustained income generation. Therefore, the definition of capital assets aligns closely with the concept of an ongoing source of value, such as interest or dividends, which further underscores their importance in an investment portfolio.

In contrast, the other options do not capture the essence of capital assets. Short-term investments focus on liquidity and quick returns, while assets meant solely for resale indicate a primary purpose that contradicts the long-term value generation associated with capital assets. Since none of the alternatives convey the proper characteristic of capital assets as income-generating over time, the correct answer is firmly established in the definitions and purposes of these types of assets.