[bc111806]

What does the word capitalized mean? Thanks.

[JBeaucaire]

It's an accounting method used to delay the recognition of expenses by recording the expense as long-term assets.

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. Companies take expenses that they incur today and deduct them over the long term without an immediate negative affect against revenues.

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 its expenses forever, such a practice will fail in the long run.

Capitalize

[MaggieMouse]

It's the opposite of expensed. For instance, an assembly line, when you add an important component to it, usually the cost of that component should be capitalized, which means it will be added to the cost of the asset, and it will be depreciated in revenue earning periods. On the contrary, when you change a screw on one part, usually that cost will be expensed, which means it goes to the period cost, and will not be part of the asset cost.