capitalize

Definition

To classify a cost as a long-term investment, rather than charging it to current operations. A capitalized cost does not appear on the income statement, but instead appears as a debit on the long-term assets account and a credit on the cash account of the balance sheet. However, the depreciation expense related to the capitalized cost will appear as an expense on the income statement. Since the long-term assets account is larger due to the effect of capitalization, the depreciation costs are also proportionately larger. Thus, the timing of expense recognition is changed, but eventually all expenses do get recognized on the income statement.

Use capitalize in a sentence

To reduce the negative impact of many large purchases on the company's current revenue, the accounting department decided to capitalize the expense and record it as a long-term asset, thus changing the time that the expense is recognized.

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