A payment for routine repairs is incorrectly recorded as the purchase of a new asset. This error mainly causes:
Correct answer: B. Assets and current profit to be overstated
- A. Assets and current profit to be understated
- B. Assets and current profit to be overstated
- C. Liabilities and current profit to be understated
- D. Capital and liabilities to be overstated
Explanation
Routine repairs are revenue expenditure and should be charged as an expense. Capitalising them overstates assets and avoids the immediate expense, so current profit is also overstated.
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About Accounting Principles
Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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