What are capitalized costs?

and Capitalized costs are any type of additional expenditure that is used on the cost base of a fixed asset. Many businesses use this approach in terms of funding for solid assets, or even creating or creating a fixed asset, such as the construction of a shopping center or office building. One characteristic of capitalized costs is that costs are not only used for the time period in which it occurred. This type of expenditure is gradually realized in a longer period of time, usually due to factors such as amortization or depreciation.

The addition of capitalized costs occurs in the balance sheet and is directly related to the existing fixed asset. This process allows you to apply to this asset with income that are generated by holding or controlling an asset such as a property or building. Since fixed assets tend to provide consistent use for many years, amortize the cost of these assets, with OHIce for income that causes the use of this asset.

The basic example of capitalized costs would be the construction of a new production plant. During the construction of the facility, there are significant expenditures in terms of building materials, the work needed to build a plant and financing, which the owner receives for the financing of the project. These expenditures are related to the plant as a fixed asset and are taken into account in determining the total costs associated with the plant ownership. The cost monitoring facilitates whether the income generated after completion and occupying the building is sufficient to settle these expenses as well as the persistent cost of maintaining the structure. Since the detail is monitored in the balance sheet of the owner's accounting records, it is easy to determine when the project generated enough income to cover the cost of construction and generates sufficient income to take care of the maintenance and maintenance of the plant.

connectionsIt is also important to capitalized costs with a particular fixed asset in terms of claiming the depreciation of these assets for tax purposes. This depreciation can be used to help reduce the overall tax liability by compensating part of the generated income. The exact mechanisms used to claim depreciation will vary from one nation to another, based on current regulations and standards established by the tax or income agency operated by this national government.