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.

References

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