Why are certain costs of doing business capitalized when incurred and then amortized over subsequent accounting cycles?
A)To reduce the income tax liability
B)To aid management in cash-flow analysis
C)To match the costs of production with revenues as earned
D)To adhere to the accounting constraint of conservatism

Question

Quizplus · Accepted Answer

Capitalizing certain costs and amortizing them over subsequent accounting cycles allows for the expenses to be matched with the revenues earned during those cycles. This is known as the matching principle and is a fundamental concept in accounting. By amortizing the costs over multiple periods, the impact on the income statement is spread out, providing a more accurate representation of the company's financial performance over time. This also helps to avoid distorting the income statement in any one period, making it easier for analysts and investors to assess the company's financial health.

Why Are Certain Costs of Doing Business Capitalized When Incurred