When a company makes an expenditure that is neither a payment to a creditor nor a distribution to an owner, management must decide if the expenditure should be capitalized (recorded as an increase in an asset or expensed - recorded as an expense thereby decreasing owners' equity)

Required:

1. Which factor factors should the company consider when making this decision?

2. Which key accounting principle is involved?

3. Are there any constraints that could cause the company to alter its decisions?

Explain your responses.