What Does it Mean to Capitalize an Expenditure?


Many businesses capitalize expenditures. However, this is done only with high-priced items such as vehicles, machinery, or buildings that are considered property. These items are considered of value to the company for a long period of time.


  • When an item is capitalized, the value of the item is placed in an asset, which increases the value of the company. This is because these items are considered to lose their value slowly or, as in the example of land, increase over time. The asset is given a number for tracking purposes and is listed on the company's property tax inventory. The company is billed yearly for taxes based on the value of its assets. The listing of a depreciating asset goes down in value each year until it is considered to have no value.


  • Items that are capitalized are allowed to be depreciated over a period of time, such as three, five or even 15 years. When an item is depreciated, the full cost of the item is not shown in expenses at one time, but is divided over several years. This keeps the net income of the company from being affected too negatively at any one time.

Reason for Depreciation Length

  • The time period for depreciating a capitalized item is based on how long the item is thought to last. Properties such as land are usually depreciated out over several decades, whereas items such as vehicles are normally depreciated out over three or five years, depending on the cost. See the Resources section for a link to the IRS rules that govern depreciation expenses,

Related Searches


Promoted By Zergnet



You May Also Like

  • What Is a Capital Expenditure?

    "Capital expenditure" is an accounting term used to describe certain purchases or spending by a business. While a business might define many...

  • Accounting for Capital Expenditure

    Every purchase a company makes either represents an expense or an asset. Expenses, like supplies, rent and utilities are quickly used up....

  • How to Capitalize Interest on Construction Projects

    Under FASB 34, companies must capitalize interest on construction projects. It is important to remember that the company may only capitalize the...

  • Capitalizing vs. Expensing Effect on ROI

    Capitalizing and expensing are two different accounting methods companies use to record an expense. With the capitalization method, the expense of the...

  • What Does Capitalization Rate Mean?

    Capitalization rates, or cap rates, are an important part of valuing investment property. They are widely used by real estate investors, brokers...

  • Operating Expenditure Vs. Capital Expenditure

    Companies spend a lot of money on a lot of things, but each expense usually falls into one of two categories: operating...

  • Capital Expenditure Vs. Expense

    Companies spend money in order to develop the company and earn profits. When the company spends money, it has two options at...

  • What Is Capitalization of an Asset?

    Companies capitalize assets to reduce the operating charges that generally come from such long-term initiatives as business software design, goodwill improvement and...

  • The Capitalization of a Mortgage

    Capitalization, in the general financial sense, is the accounting of costs into the overall price of an asset or debt. For instance,...

  • IFRS Capitalization Rules

    Business expenditures can be divided into either revenue expenditures or capital expenditures. Revenue expenditures are recorded on the income statement as expenses,...

Related Searches

Is DIY in your DNA? Become part of our maker community.
Submit Your Work!