When a company purchases a building, what is the initial impact on the income statement?

When a company purchases a building, the transaction is classified as a capital expenditure rather than an immediate expense. The building is recorded as an asset on the balance sheet, meaning that the cost associated with the building is capitalized. This means that rather than affecting the income statement right away, the cost will be depreciated over the useful life of the asset in future accounting periods.

Capitalizing the building reflects the idea that the expenditure contributes to future economic benefits for the company, rather than being an immediate cost that reduces profits in the current period. Therefore, at the time of purchase, there is no immediate impact on the income statement regarding expenses. Instead, any impact on net income will only occur gradually through depreciation in subsequent periods.