Accounting for IGCSE & O level - Preparation Of Financial Statements (Section 16 - No. 40)
What would be the effect of including an item of capital expenditure in the income and expenditure account?
The surplus would be overstated.
The deficit would be overstated.
The surplus would be understated.
The deficit would be understated.
Explanation
Capital expenditure is not an expense, including it would increase the amount of expenses shown on the debit side which will lead to an overstated deficit.
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