Question

Treating a capital expenditure as an immediate operating expense:

Select one:
a. overstates expenses and overstates retained earnings
b. understates expenses and understates assets
c. overstates assets and overstates revenues
d. overstates expenses and understates assets

Answer 1

Treating a capital expenditure as an immediate operating expense understates expenses and assets, leading to an inaccurate financial position. Option b.

Step-by-step explanation:

When a capital expenditure is treated as an immediate operating expense, it understates expenses and understates assets option b. This is because capital expenditures are typically long-term investments that should be capitalized and recorded on the balance sheet as assets. Treating them as immediate operating expenses falsely reduces both expenses and assets, giving an inaccurate representation of the financial position of the company.