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To capitalize or expense? How do you decide?

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Can you explain the reason why we capitalize an expense and depreciate it as against writing it off in the period that the expense was incurred. Give an example.

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Solution Summary

200 words in everyday language suitable for a novice. Example transaction given to illustrate how this works.

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To capitalize means to record as an asset and not show it as completely used up already (used up = expense). So, if what we buy isn't used up yet, it has value in future periods, we capitalize it and depreciate it in the period when it is used up.

I would not say we are "capitalizing ...

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Carol Sargent, PhD
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  • MSc, University of Virginia
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