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How the error would affect the statement of cash flows

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Reference no: EM132901890

Question - Capitalization versus Expensing Decision - When a firm incurs costs on an item to be used in operations, management must decide whether to treat the cost as an asset or an expense. Assume that a company used cash to acquire machinery expected to contribute to the generation of revenues over a three-year period and the company erroneously expensed the cost to acquire the machine.

Required -

a. Describe the effects on ROA of the error over the three-year period.

b. Explain how the error would affect the statement of cash flows.

Reference no: EM132901890

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