Treating a capital expenditure as repairs and maintenance expense

Question

Quizplus · Accepted Answer

Treating a capital expenditure as repairs and maintenance expense would overstate expenses and thus understate net income. This is because a capital expenditure represents a long-term investment and should be depreciated over time, whereas repairs and maintenance are short-term expenses. Overstating expenses will decrease net income, which will in turn decrease retained earnings and decrease owners' equity. It will not have an impact on assets or revenue.

Treating a Capital Expenditure as Repairs and Maintenance Expense