chetan86

I saw another post that confused "capitalizing" w/ "capital lease"

they are not the same thing.

there are TWO different animals here -

1. Capitalizing vs. Expensing - "capitalizing" means you spread out the expense over a period of time (smoothing out), expensing means you recognize the entire expense in the current period. Check out R&D and software development examples for these topics.

2. Operating Leases vs. Finance (capital) leases - are two different treatments for leases that *only* apply to leases and nothing else.

Chung's post is accurate and good at explaining lease treatments, but its not what the question is asking.




the answer is B because a company that expenses costs will show LOWER profitability in the early part of the asset's life due to HIGHER expense being reported.