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A company purchases an asset in the first quarter and decides to capitalize the asset. Compared to expensing the asset cost, capitalizing the asset cost will result in higher cash flows in the first quarter from:

A operations.

Capitalizing the cost of the asset results in higher CFO and lower CFI in the period of the purchase, compared to expensing the entire cost. If the cost is expensed, the cash outflow is classified as CFO, but if the asset is capitalized, the cash outflow is classified as CFI. Cash flow from financing is not affected by the decision to capitalize.


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