Accounting for IGCSE & O level - Accounting Procedures (Section 6 - No. 8)
What is the effect of a capital expenditure on a business's financial statements?
It increases the assets on the balance sheet and has no impact on the income statement immediately.
It decreases the assets on the balance sheet and reduces net income immediately.
It increases both assets and liabilities immediately.
It increases expenses and decreases owner's equity immediately.
Explanation
Capital expenditures are added to the value of long-term assets. These assets, however, will be expensed as depreciation over their useful life.
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