Improperly classifying a fixed asset by recording the amount in the repairs and maintenance expense account will have an effect on which of the following financial statements until the asset would normally have been depreciated?
A) the balance sheet
B) the income statement
C) the cash flow statement
D) both the income statement and the balance sheet

Question

Quizplus · Accepted Answer

Improperly classifying a fixed asset by recording the amount in the repairs and maintenance expense account will affect both the income statement and the balance sheet. It will impact the income statement by increasing expenses, thus decreasing net income. On the other hand, it will affect the balance sheet by understating the fixed asset's value and overestimating the repairs and maintenance expenses. This mistake will continue to affect both statements until the asset's normal depreciation period, where the asset's value is gradually reduced and correctly reflected in both the income statement and the balance sheet. The cash flow statement will not be immediately affected since neither cash nor cash equivalents have been affected by this mistake.

Improperly Classifying a Fixed Asset by Recording the Amount in the Repairs