Accounting & the 3 Statements
A company capitalizes $100 of software development that it should have expensed. What happens to net income, EBITDA, and cash flow this year (25% tax)?
Model answer
Net income: HIGHER. The $100 isn't on the income statement as an expense (only a fraction shows up later as amortization), so pre-tax income is overstated by ~$100 and net income by ~$75 this year.…
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