Accounting · Accounting Principles and Concepts
A banking institution records the purchase of a high-end server for its data center. If the accountant mistakenly treats the installation charges paid to the engineer as a general administrative expense instead of capitalized into the cost of the asset, which accounting principle is primarily violated and what is the impact on financial statements?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Conservatism Principle; Liabilities are understated.
- 2Matching Principle; Net Profit is overstated and Assets are overstated.
- 3Cost Concept; Net Profit is understated and Assets are understated.✓
- 4Revenue Recognition Principle; Net Profit is overstated.
Correct answer
Cost Concept; Net Profit is understated and Assets are understated.
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