Accounting for IGCSE & O level - Accounting Procedures (Section 12 - No. 27)
What is the effect on the financial statements of incorrectly classifying a revenue expenditure as a capital expenditure?
Expenses are overstated in the income statement.
Profit is understated in the income statement.
Assets are understated in the balance sheet.
Profit is overstated in the income statement.
Explanation
If you capitalize something that should be expensed, you will not recognize the expense right away, which will inflate profit.
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