Capitalizing costs is an attempt to follow the Matching Principle of accounting. The Matching Principle seeks to match expenses with revenues. In other words, match the cost of an item to the period in which it is used, as opposed to when the cost was incurred. As some assets have long lives and will be generating revenue during that useful life, their costs may be amortized over a long period.
An example of this would be costs associated with constructing a new factory. The costs associated with building the asset (including labor and financing costs) can be added to the carrying value of the fixed asset on the balance sheet. These capitalized costs will be recognized in future periods, when revenues generated from the factory output are recognized.
Investment dictionary. Academic. 2012.
Look at other dictionaries:
capitalized cost — The total price of the vehicle, in effect, its purchase price. In theory, the cap cost should equal the amount you would pay for the vehicle if you were purchasing the vehicle. When a lease is made, the dealer sells that vehicle to the leasing… … Dictionary of automotive terms
Capitalized Cost Reduction — Any upfront payment that reduces the cost of financing. Capitalized cost reduction is generally associated with the purchase or lease of an automobile, and reduces the monthly payment owed if the vehicle is financed. Reductions can be made from… … Investment dictionary
capitalized cost reduction — A fancy name for a cash down payment, money you pay up front that is applied to the final purchase price of a lease. A large cap cost reduction will, of course reduce the monthly payments, but it will also negate one of the big advantages of… … Dictionary of automotive terms
net capitalized cost — The price of the vehicle after deducting any dealer participation, manufacturer discounts, and cap cost reduction ( down payment ) from the MSRP … Dictionary of automotive terms
cost — The price that a shop charges for a vehicle or one of its components. To the shop, it is the price they pay for the component (i.e., the net price) to which they add an amount or percentage to arrive at the selling price. Also see cap cost… … Dictionary of automotive terms
cost reduction — See cap cost reduction capitalized cost reduction … Dictionary of automotive terms
capitalized — See net capitalized cost … Dictionary of automotive terms
cost basis — see basis 3 Merriam Webster’s Dictionary of Law. Merriam Webster. 1996. cost basis n. The amount … Law dictionary
Cost of goods sold — Accountancy Key concepts Accountant · Accounting period · Bookkeeping · Cash and accrual basis · Cash flow management · Chart of accounts … Wikipedia
Capitalized — Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives greater than one year. The New York Times Financial Glossary * * * capitalized cap‧i‧tal‧ized [ˈkæptl aɪzd] also… … Financial and business terms