When Alpha Industries records equipment maintenance as a capital improvement to fixed asset accounts instead of an expense account, what is the result?

Question

Quizplus · Accepted Answer

Recording equipment maintenance as a capital improvement instead of an expense inflates profits (since expenses are lower), which in turn increases owner's equity. This practice is considered capitalization of expenses fraud because it misrepresents the financial condition of the company by capitalizing costs that should have been expensed.

When Alpha Industries Records Equipment Maintenance as a Capital Improvement