What does it mean to ‘capitalize an expense’?

a. To report an expense in the capital expenditures account.

b. To spread a liability balance over a period of years.

c. To report the whole expense of a major investment in the time period when it was purchased.

d. To record the cost as an asset, then record a depreciation expense over a period of years that accumulates to the purchase cost to offset that asset balance.

Expert Solution

Correct answer is d) To record the cost as an asset, then record a depreciation expense over a period of years that accumulates to the purchase cost to offset that asset balance.

Capitalization refers to the process where an expense is not recurring and is incurred once in a ifetime, so as per accounting standards cost incurred is recognised as an asset and then depreciation expense is charged over a period of years which offsets the cost of asset recorded.

ekkarill92 answered 2 years ago

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What does it mean to ‘capitalize an expense’?

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