When comparing capitalizing versus expensing costs which of the following statements is TRUE?
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A) |
Capitalizing costs creates higher cash flows from operations and lower cash flows from investing. |
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B) |
Capitalizing costs creates lower cash flows from operations and higher cash flows from investing. |
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C) |
Expensing costs creates higher cash flows from operations and lower cash flows from investing. |
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D) |
Expensing costs creates lower cash flows from operations and lower cash flows from investing. |
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The correct answer was A.
Although net cash flows are not affected by the choice of capitalization or expensing, the components of cash flow are affected. Because, a firm that capitalizes classifies the expenditure as investing (not operations), cash flow from operations will be higher for firms that capitalize and investing cash flows will be lower than that of an expensing firm | 
发表于 2006-4-27 16:40
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