Accounting for IGCSE & O level - Accounting Procedures (Section 19 - No. 41)
If a company records a capital expenditure as a revenue expenditure, what is the effect on the company's profitability in the current period?
Profit is overstated.
Profit is understated.
Profit is unaffected.
The effect depends on the materiality of the expenditure.
Explanation
Recording a capital expenditure as a revenue expenditure means the cost is expensed immediately, which reduces profit in the current period.
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