How to Capitalize Expenses

In accounting, you must capitalize an expense when it is purchased. Simply put, capitalizing an expense involves listing an expense as an asset. A capitalized asset is then reduced over time through depreciation. To capitalize an expense you need to make an entry in the accounting journal, indicating that an expense has been converted into an asset.

Instructions

1. Write down the relevant account title in the appropriate column. For example, if the expense is for equipment, you would probably use an equipment account. The exact account titles will vary from firm to firm, however.

2. Credit the debit account; write down the dollar value of the expense on the same line, in the debit column. This indicates an increase to the relevant account.

3. Write down the name of the account that has been used to pay the expense in the account column, directly below the account that has been credited.

4. Debit the credit account; write down the dollar value of the expense on the same line as the the account title, in the credit column. This completes the entry, indicating that an expense has been capitalized and is now recorded as an asset.

References

• "Accounting: Concepts and Applications"; W. Steve Albrecht et al; 2007