When a company capitalizes a cost, its ______ increase.Multiple choice question.liabilitiesexpenseslong-lived assetsrevenuesretained earnings

Break Down the Problem

1. Identify what happens when a company capitalizes a cost.
2. Determine the correct choice from the given options that reflects the definition of capitalization.

Relevant Concepts

• Capitalization: This is the accounting process where a company records a cost as an asset rather than an expense. Capitalizing a cost means it is added to the balance sheet as a long-lived asset, reflecting the company's investment.

Analysis and Detail

1. Assets vs. Expenses: When a cost is capitalized, it signifies that the expenditure will provide future economic benefits. Thus, the cost does not immediately reduce net income; it is recorded as a long-lived asset.

2. Effects on Financial Statements:

   • Increase in Long-Lived Assets: Capitalizing costs increases total assets on the balance sheet.
   • Impact on Income Statement: Although the expense remains on the balance sheet initially, the effect will only be seen on the income statement over time through depreciation (for tangible assets) or amortization (for intangible assets).

Verify and Summarize

Given this understanding, when a company capitalizes a cost, it specifically leads to an increase in long-lived assets on the balance sheet.

Final Answer

The correct option is long-lived assets.