does capitalizing an amount means that it will never be charged as an expense?

1 Answer | Add Yours

gsenviro's profile pic

gsenviro | College Teacher | (Level 1) Educator Emeritus

Posted on

No. Capitalizing an amount or asset simply means that the cost will be charged as an expense over a longer duration of time (typically its life) using amortization or depreciation. 

A company may charge the expenses in the same time period when they are incurred or can use the amount spent on building the asset as a capitalized amount. An example is the purchase of say a computer for $1000 at a law firm. The computer can be charged directly as an expense for the said time period or the firm may decide to use it as a fixed asset for a period of 5 years (useful life of the computer). In the first case, the expense is $1000, while in the second case, it will be distributed over 5 years, i.e. $200/year. 

For a depreciating asset the expenses can be billed as depreciating cost (say at 10% annual depreciation, etc.).

We’ve answered 318,989 questions. We can answer yours, too.

Ask a question