Accounting for IGCSE & O level - Accounting Procedures (Section 21 - No. 15)
How does the incorrect recording of a capital expenditure as a revenue expenditure affect the income statement?
Expenses will be understated, and profit will be overstated.
Expenses will be overstated, and profit will be understated.
Both expenses and profit will be overstated.
Both expenses and profit will be understated.
Explanation
Incorrectly recording a capital expenditure as a revenue expenditure causes the business to overstate its expenses, which leads to an underestimation of profit.
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