From the course: Finance and Accounting Tips

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When to capitalize or expense costs

When to capitalize or expense costs

From the course: Finance and Accounting Tips

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When to capitalize or expense costs

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- You may have heard the phrase we'll capitalize those costs. What the devil does that mean? - The term capitalize has a very specific meaning when it comes to accounting and to the financial statements. Capitalize means that we believe an expenditures going to benefit more than one period. More than one year for example. - If that's the case then the cost of that expenditure should be spread out over the time periods that are expected to be benefited. So capitalize means to record the expenditure as an asset on the balance sheet and then expense that asset to the income statement over time. - As opposed to just running the expenditure to the income statement immediately as an expense. So the choice is do we capitalize or do we expense? Do we put the expenditure on the balance sheet and as an asset and move it to the income statement in pieces over time? Or do we just run it to the income statement immediately? - [Instructor] Well that sounds kind of easy. If a cost benefits just this…

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