A company spent $5000 to install a new theft-detection system in its headquarters. Management wasn’t sure whether this cost should be capitalized to the Buildings account or expensed immediately. The CFO flipped a coin, it came up heads, so the company capitalized the costs.

This transaction will reduce Cash and increase Buildings, instead of increasing Maintenance Expense. Thus, stockholders’ equity will be increased (the extra depreciation expense will be less than the maintenance expense). The cash outflow will be considered Investing; so Cash from Investing Activities will decrease. If the CFO had expensed the cost, it would have been an Operating cash flow. By moving the cash outflow from Operating (expensing) to Investing (capitalizing), Cash from Operations will be increased.

This transaction will reduce Cash and increase Buildings, instead of increasing Maintenance Expense. Thus, stockholders’ equity will be increased (the extra depreciation expense will be less than the maintenance expense). The cash outflow will be considered Investing; so Cash from Investing Activities will decrease. If the CFO had expensed the cost, it would have been an Operating cash flow. By moving the cash outflow from Operating (expensing) to Investing (capitalizing), Cash from Operations will be increased.

This transaction will reduce Cash and increase Buildings, instead of increasing Maintenance Expense. Thus, stockholders’ equity will be increased (the extra depreciation expense will be less than the maintenance expense). The cash outflow will be considered Investing; so Cash from Investing Activities will decrease. If the CFO had expensed the cost, it would have been an Operating cash flow. By moving the cash outflow from Operating (expensing) to Investing (capitalizing), Cash from Operations will be increased.