Woods Company made an ordinary repair to a delivery truck at a cost of $500.Woods' accountant debited the asset account,Equipment.Was this treatment an error,and if so,what will be the effect on the financial statements of Woods?

Question

Quizplus · Accepted Answer

The repair should have been expensed as a repair expense, which would have decreased net income. By debiting the asset account, the repair cost was capitalized and increased the value of the Equipment account, overstating assets and net income. This error will also continue to overstate net income in future years since the cost was not expensed properly.

Woods Company Made an Ordinary Repair to a Delivery Truck