Capitalization Policy - Effect on Financial Statements

The video tutorial explains the concept of capitalization policy in financial statements, discussing whether to expense or capitalize an asset. It highlights the effects of capitalization on income variability, operating cash flows, leverage ratios, and returns on assets and equity. The tutorial also covers the treatment of interest expenses and differences in reporting standards like GAAP and IPIS. Consistency in capitalization policy is emphasized for accurate financial representation.

What are the potential effects of a capitalization policy on operating cash flows?

Discuss how a capitalization policy can influence leverage ratios.