Incorrectly treating a repair expenditure as a betterment:

Question

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Treating a repair expenditure as a betterment (capitalizing an expense that should have been expensed) leads to overstating assets (because the cost is added to the asset's value on the balance sheet instead of being expensed in the income statement). This, in turn, overstates owner's equity because the asset increase isn't offset by the expense in the current period, leading to higher net income and, consequently, higher retained earnings, a component of owner's equity.

Incorrectly Treating a Repair Expenditure as a Betterment