Why Are Certain Costs of Doing Business Capitalized When Incurred

question 18

Multiple Choice

Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles?

• A) To reduce the federal income tax liability
• B) To aid management in cash-flow analysis
• C) To match the costs of production with revenues as recognized
• D) To adhere to the accounting constraint of conservatism

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Definitions:

Personal Relevance

The degree to which information or an event is pertinent to an individual's life and interests.

Availability Heuristic

A mental shortcut that relies on immediate examples that come to a given person's mind when evaluating a specific topic, concept, method, or decision.

Confirmation Bias

The tendency to view events and people in ways that fit how we want and expect them to be.

Causal Attribution

The process by which individuals explain the causes of behavior and events, attributing them to internal dispositions or external situations.