capitalize

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Capitalize

In accounting, to recognize expenses on long-term liabilities over a long period of time. This allows a company to spread out its expenses so they do not appear to reduce profits at any particular time. For example, a company may have a $1 million profit and a $1 million loan to acquire machinery for its factory. If it does not capitalize the loan, its balance sheet will show no profit for that year. Capitalizing the loan allows the company to recognize the liability over a certain period, usually the usable life of the machinery.

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.

capitalize

(1) In finance:(a) To add an expenditure to the basis of property.(b) To provide funding to an enterprise. (c) To book something as an asset and depreciate it rather than writing off the money spent as an expense.(When one “cooks the books”for a business,extensive repairs might be capitalized as improvements in order to make the enterprise appear more valuable than it is in reality.This approach runs counter to the normal taxpayer desire to treat all repairs as expenses in order to gain maximum tax deductions in the current year.) (2) In appraisal,to estimate the present value of an income stream from a business or property.

Capitalize

To treat the cost of additions and improvements to property as a capital improvement or expenditure.
References in periodicals archive ?
Thus, the Tax Court said ITW should capitalize the judgment "whether or not such obligation was fixed, contingent, or even known at the time such property was acquired."
The Tax Court's use of Webb should not lead CPAs to conclude clients should capitalize all benefit payments that take into account preacquisition service.
For tax purposes, the company properly capitalizes the cost of the water-filtration system, but deducts as a current expense the full cost of the remedial investigation/feasibility study because it considers it relatively immaterial and incidental.
We also seek to capitalize on positive numbers in the "tackle box" (Diag.
The Office of Associate Chief Counsel, at least here, took the position the taxpayer should allocate modeling and design costs to "the activities of writing machine-readable code and the option selection and implementation of existing embedded software templates." The portion allocated to code writing is deductible, however the company should capitalize the remaining expenses.