Capitalizing vs Expensing - question


I had two questions please:

  1. How does capitalizing vs expensing affect the Cash Flow from Investing? I see it decreases but can’t understand the rationale yet.

  2. In the Prep Provider notes it says that Equity (in subsequent years) increases. Wouldn’t it be the opposite? Because you will be charging the depreciation cost

Any explanation would be appreciated.


1 capitalizing affects to the amount of depreciation and amortization of assets that is putted on cash flow from operating. However, expensing is captured on the cash flow from operating so it doesnt affect to the cash flow from investing
I am not good at English, so sorry if i make you feel confused

You are correct on both counts.

When you capitalize an asset, it will decrease your investing cash flow. When you later depreciate/amortize that asset, the depreciation/amortization expense is added back to net income to arrive at operating cash flow (using the indirect method).

I think that your English is quite good. What is your native language?

Thanks, and agree the english is good!

The effect on the CFO (operations) is clear to me (add back depreciation via indirect method). But why would increasing depreciation, affect your CFI (investing)? If through expensing or capitalizing, there is no investment outflow (I could be wrong?)

Do they say that Equity increases, or that Equity is higher?

Do you know Viet Nam?

you should read reading 23 again. Depreciation and amortization are both putted on cash from investing activity, so when it increases CFI will decline.

I watched a few videos and got it clear now.

Per my understanding, what the reading meant when it said CFI goes down when capitalizing, is simply due to the initial outflow for paying the long-lived asset (Capex). In contrast, when expensing, the outflow is netted already within the I/S, rather than reflected in the CFI.

Depreciation and amortization are charged to the CFO through the indirect method, watch out there.

I am so sorry about my mistake.

We are all learning here! Good luck