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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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
capitalizingthe process of converting an expense into an equivalent capital sum, carrying forward that expense as a FIXED ASSET in the BALANCE SHEET of a firm rather than writing off that expense as a current cost. Capitalization is applied to expenditure on assets that have been acquired for use in the business for periods in excess of a year and which are not for resale, for example motor vehicles, plant, machinery, equipment, land and buildings, patents, goodwill, trademarks, brands etc.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson