How to Treat a Capital Expenditure As an Immediate Expense

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A capital expenditure is a transaction where a company buys a fixed asset or spends money to make improvements on currently owned assets. Companies often record these expenditures as an asset. Assets bring value to a company for many years. Another option, however, is to simply expense these costs immediately on the income statement. Companies can typically dictate a specific dollar limit at which they expense a capital expenditure rather than record it as an asset.

Compute the total cost for the capital expenditure. Include the asset’s purchase price, shipping charges, installation fees and set-up costs.

Review generally accepted accounting principles to determine if expensing the capital expenditures is acceptable.

Gather information to write a journal entry. Ensure paperwork exists to document each cost associated with the asset the company will expense.

Debit an expense account for each cost associated with the capital expenditure. Computer equipment, shipping and set-up expenses are common examples of debited expense accounts. Credit the cash or accounts payable account, depending on the payment method.

Tips & Warnings

  • It is better to record capital expenditures as an asset and then depreciate the cost during the asset's useful life. This is a better representation of the transaction and does not have significant effects on the company's net income for a single time period.

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References

  • "Intermediate Accounting"; David Spiceland, et al.; 2007
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