I’m confused… Shouldn’t these two have the same effects on B/S and I/S? they’re both dealing with whether to expense something rather than put it under assets why do they have difference effects? any help is appreciated thanks
nope. Very crucial difference - with capital leases you record a liability on the BS, with capitalizing expenses you don’t. That makes a huge difference in the ratios. Just think about what each accounting event means and you won’t have to memorize the ratios.
Yep what lola said. I did not really understand this difference either up until about 2 weeks ago, then the light bulb went off in my head and everything started making more sense.