Final answer:
The incorrect classification of capital expenditures as revenue expenditures results in the company understating its assets and overstating its net income (option B) because the expenses are fully expensed in the current period instead of being depreciated over the asset's useful life.
Step-by-step explanation:
When a new accountant mistakenly classifies capital expenditures as revenue expenditures, it impacts the financial statements. Capital expenditures are assets that provide benefits over multiple periods and should be capitalized – that is, added to the asset's book value and expensed gradually through depreciation. However, if capitalized costs are recorded as revenue expenditures, which are fully expensed in the period they are incurred, this error leads to the immediate expense of these costs in the income statement.
The outcome of this error is that the company will understate assets because the asset is not correctly increased through capitalization. Additionally, the company will overstate net income in the short term because the expenses reported will be lower than they should be – the capital expenditure should have been depreciated over several periods, not expensed all at once.
Therefore, the correct answer to your question: A new accountant mistakenly classified some capital expenditures as revenue expenditures. What is the outcome of this error? is B) The company will understate assets and overstate net income.