If a company capitalizes a cost that should have been expensed:
A) expenses will be overstated in the year of the error.
B) net income will be understated in the year of the error.
C) assets will be overstated.
D) revenues will be overstated.

Question

Quizplus · Accepted Answer

Capitalizing a cost that should have been expensed will lead to overstating assets on the balance sheet. It will not affect the income statement or revenues. However, in future years, the company may record lower expenses and therefore, higher income, which could overstate future revenues.

If a Company Capitalizes a Cost That Should Have Been