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Intermediate Acctg Criteria capitalization Principle Factors

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When a company makes an expenditure that is neither a payment to a creditor nor a distribution to an owner, management must decide if the expenditure should be capitalized (recorded as an increase in the asset) or expensed (recorded as an expense thereby decreasing owner's equity).
1. Which factor or factors should the company consider when making this decision?
2. Which key accounting principle is involved?
3. Are there any constraints that should cause the company to alter its decision?

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14. When a company makes an expenditure that is neither a payment to a creditor nor a distribution to an owner, management must decide if the expenditure should be capitalized (recorded as an increase in the asset) or expensed (recorded as an expense thereby decreasing owner's equity).

1. Which factor or factors should the company consider when making this decision?

First, in order to be capitalized, the payment must be for something owned (firm has title to it) that arose from a transaction and ...

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Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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