Accounting for IGCSE & O level - Accounting Procedures (Section 18 - No. 33)
What impact does misclassifying a revenue expenditure as a capital expenditure have on the income statement?
Expenses are overstated, and profit is understated.
Expenses are understated, and profit is overstated.
Both expenses and profit are overstated.
Both expenses and profit are understated.
Explanation
If you capitalize something that should be expensed, the expense is delayed, inflating profit.
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