If a company capitalizes a cost that should have been expensed: expenses and assets will be understated in the vear of the error: expenses and net income with be ovirstated in the year of the error expenses will be overstated and assets will be overstated in the year of the error. expenses and net income will be understated in the year of the error: expenses will be understated and net income will be overstated in the year of the erron