PRC-1 · Chapter 6 · Question 7 of 100
If a business incorrectly records the purchase of a new computer (capital expenditure) as office stationery (revenue expenditure), what is the effect on the financial statements?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Assets are understated, and net profit is understated.
Explanation
Expensing an asset means it does not appear on the balance sheet (Assets understated) and the full cost is immediately deducted from revenue (Net profit understated) instead of being capitalized and gradually depreciated.
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