I am trying to deep dive into this FSA stuff. Could any one explain this 1. “Capitalized costs are amortized to expense over time” 2. The initial expenditure is recorded as a cash flow from investing activities 3. Amortization is added back to net income when calculating cash flow from operating activies 4. In effect software costs reclassifies from operating to investing cash flow and then allocates that amount to amortization expense over time Let’s I have $100 capitalized over 4 years 1. My assets increase by $75 and I expense $25 in Yr1 2. Does the second statement means, we reduce the investing cash flow by $100 dollars? 3. Reduce Operating cash flow by $25 and increase CFI by $25. 4. Any finance gurus insights will be really helpful. If someone understand this kind of intricacies, they deserve to be passed
when you capitalize the expense - it is a CFI, yes. you get an amortization of the capitalized cost … and this is same as depreciation in terms of treatment. a Non cash charge. when you calculate CFO -> it would be NI + depr. + Amortization … so the 25 you depreciated / amortized gets added back while computing your CFO. On your Asset side - where the Capitalized Item had been added - you have the contra account (accumulated depreciation’s counterpart) where you are reducing the Asset. This is just like any other equipment purchase that you do, if you think about it.
Thanks CPK. God bless you dude. You should be passed with out even taking the test
if you are indian – aapke muh mein ghee sakkar… (clarified butter and sugar in your mouth for the others)
Zaroor