Capitalize vs. Expense Flashcards
What is a fixed asset?
An asset that’s planned to be used for more than one year
Purpose is to improve business
What are examples of fixed assets?
Land, land improvements, building, building improvements, equipment
What’s included in the purchase of a fixed asset?
Purchase price, transportation price, installation cost, taxes involved
How does one decide whether to capitalise or expense an asset?
Whether the item will be used of consumed within one year
If yes, expense
If no, capitalize
Should small expenditures be capitalised?
No
Companies will set a price threshold for assets that are to be capitalized
How are purchases capitalised?
The cost is added to the balance sheet as an asset
The asset will then be depreciated over its useful life
How are purchases expensed?
Cost is deducted immediately as an expense on income statement
Increases expenses, decreased net income
