capitalize

Capitalize

An accounting method used to delay the recognition of expenses by recording the expense as a long-term asset.

Notes:

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

However, 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 it's expenses forever, such a practice will fail in the long run.

It is important not to confuse capitalize with capitalization.

See also: Aggressive Accounting, Market Capitalization, Non-Operating Cash Flows, Operating Cash Flow - OCF, Operating Expense

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capitalize

To calculate the current value of a future stream of earnings or cash flows. For example, to calculate the current price at which a bond should sell, a financial analyst must capitalize the interest payments and principal repayment that will be made to the investor.