Answer to Question #82449 in Accounting for folakemi

Question

In two sentences, state the way in which capital expenditure are treated in accounts and why.

Answer 1

A capital expenditure is recorded as an asset and then it is charged as an expense over the useful life of the asset, using depreciation, because it helps in generating revenues in more than one period. This approach allows to better match revenues and expenses, related to new asset, do not understate net income in current period and do not overstate future period net income.