If a company decides to capitalize an expenditure as an asset instead of expensing it, what is the effect on the cash flow statement in the year of the expenditure?
$\begin{array}{ll}&\text { Cash from } & \text { Cash from } \
&\text { Operations } & \text { Investing Activities }\\hline
A.&\text { Higher } & \text { Higher } \
B.&\text { Higher } & \text { Lower } \
C.&\text { Lower } & \text { Higher } \
D.&\text { Lower } & \text { Lower }
\end{array}$

Question

If a company decides to capitalize an expenditure as an asset instead of expensing it, what is the effect on the cash flow statement in the year of the expenditure?
 $\begin{array}{ll}&\text { Cash from } & \text { Cash from } \
&\text { Operations } & \text { Investing Activities }\\hline
A.&\text {  Higher } & \text { Higher } \
B.&\text {  Higher } & \text { Lower } \
 C.&\text { Lower } & \text { Higher } \
 D.&\text { Lower } & \text { Lower }
\end{array}$

Quizplus · Accepted Answer

Capitalizing an expenditure increases cash from operations because the expense is not immediately recognized, while cash from investing activities decreases due to the cash outflow for the asset purchase.

If a Company Decides to Capitalize an Expenditure as an Asset