Capitalization vs. Expense: Impact on Firm A and Firm B

Understanding the Effects of Capitalizing Expenses on Firm A and Expensing Them for Firm B

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Question

Firm A capitalized an expense and an otherwise identical Firm B expensed it. Then,

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A. B. C. D.

B

Since the capitalized expense represents an investing cash outflow, the investing cash flow is lower for A. Firm B charges all the expenditure to operating cash flow and has a lower operating cash flow than A.