What Is a Capitalized Cost?

Capitalized costs are the costs that are first recorded as assets and then gradually converted to expenses in installments.

Capitalized cost

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Recognized as expenses in accordance with the "rational and systematic allocation principle"

Capitalized costs are recognized as expenses in accordance with the "rational and systematic allocation principle". There is no causal relationship between long-term asset costs and current income. They can benefit several accounting periods. Therefore, it should reasonably assume the beneficial relationship between income and income, and then systematically allocate them to each accounting period according to certain rules and procedures.

Recognized as an expense immediately

Expense-based costs refer to costs that are converted to expenses in the period in which they are incurred.

The salary and advertising expenses of the company's management personnel shall be immediately recognized as current expenses when incurred.

Expense costs include two types: one is the expense confirmed according to the principle of causality, such as the salary of a company's management personnel, whose utility has completely disappeared in the current period, and should be recognized as an expense in the current period; Expenses recognized by the causality and reasonably and systematically allocated principles, such as advertising costs, can achieve long-term benefits for the company, but it is difficult to determine how much benefit is achieved in an accounting period, so it has to be recognized immediately as an expense.