what do capitalized and expensed mean? How do you determine which to use? give an example...

what do capitalized and expensed mean? How do you determine which to use? give an example of each.

"Capitalized" & "Expensed"

Expert Solution

Answer -

The key distinction between Capitalized versus Expensed is that Capitalization is the technique of recognizing the amount incurred as an expenditure which is capital in nature or recognizing such as an asset of the business, whereas, expensing alludes to booking of the cost as an expense in the profit and loss statemnet of the business which is deducted from the total income while computing the profits of the company.

Examples of each -

Expensed example, Suppose the July salaries for the company's finance team should be reported as an expense in July considering the future economic value cannot be determined.

Capitalized example, Suppose that a company bears a cost of $40,000 in July to add a hydraulic lift to its delivery truck that had no lift. The residual life of the truck and the lift is 6 years. The cost of $40,000 should be capitalized since it added future economic value by improving the truck. The $40,000 cost increases the company's assets, but will be reduced by depreciating the cost to expense over the next 6 years.

ekkarill92 answered 2 years ago

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