Capitalizing costs that should be expensed:
A) is a practice mostly found in large, well-established companies.
B) usually has no effect on net income.
C) has the effect of increasing net income by the same amount of the capitalized costs.
D) is a healthy practice if they are written off shortly after the transaction takes place.

Question

Quizplus · Accepted Answer

Capitalizing costs that should be expensed delays the recognition of those costs as expenses, which means they do not reduce net income immediately. Instead, these costs are spread over future periods through depreciation or amortization, artificially inflating net income in the period in which the costs are incurred.

Capitalizing Costs That Should Be Expensed