Improperly capitalizing an expense item results in.
A)understatement of profit in the current year and overstatement in future years.
B)understatement of profit in the current year and in future years.
C)overstatement of profit in the current year and understatement in future years.
D)overstatement of profit in the current year and in future years.

Question

Quizplus · Accepted Answer

Improperly capitalizing an expense item results in overstatement of profit in the current year because the expense is not being recognized as an expense, but rather as an asset. This results in an understatement of expenses and an overstatement of assets, thereby overstating profit. In future years, when the asset is depreciated or amortized, the expense will be recognized, resulting in an understatement of profit.

Improperly Capitalizing an Expense Item Results In