Question

How do you know when you should expense or capitalize an asset?

Answer 1

Cost should be expensed when they are used up or have expired and when they have no future economic value which can be measured. For example, present month ( like October)salaries of a company's marketing team should be changed to expense in October since the future economic value of their October salaries cannot be determined.

Cost should be capitalized or recorded as assets when the costs have not expired and they have future economic value. For example, on July 27 a company pays $10000 for property insurance covering the six months of August through january.this $10000 is initially recorded as the current assets prepaid insurance.on July 31 the company will report this asset at $10000 since the $10000 has a future economic value.