If you had a business and your accountant told you to either expense it all, or to capitalize it all, what would your response be? Make a decision and prepare an argument for it, backing it up with what the short and long term effects of your decision will likely be, how this will affect your business financially and in day to day operations?
Meaning of capitalizing
Capitalizing is spreading the cost over a long period of time treating it as fixed asset.
According to the investopedia"
In general, capitalizing expenses is beneficial as companies acquiring new assets with a long-term lifespan can spread out the cost over a specified period of time."
Companies simply take expenses that they incur today and deduct them over the long term without an immediate negative affect against revenues. However, if a company capitalizes regular operating expenses, it is doing so inappropriately, most likely to artificially boost its operating cash flow and look like a more profitable company. Because a company can't hide it's expenses forever, such a practice will fail in the long run.
1. In accounting, it is where costs to acquire an asset are included in the price of the asset.
For example, if a machine has a price of $1 million this value would be recorded in the assets, if there was also a $20,000 charge for shipping the machine then this cost would be capitalized and included in assets.
Capitalization Vs. Expensing
are generally allowed to deduct any ...
This solution is comprised of a detailed explanation to answer what would your response be.