Explain the difference between Capitalising vs. Expensing

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Explain the difference between Capitalising vs. Expensing

Capitalising is when the company creates a fixed asset for the expense incurred on the balance sheet and records a proportion of those assets as an expense such as depreciation or amortisation on the IS over time. If the expense incurred by the company offers a potential benefit over a year and can be clearly quantified, then accounting regulators allow those costs to be capitalised.

However, if expenses do not provide future benefits or cannot be clearly quantified then a company will need to book the entire expense on its income statement in one go in the period it was incurred. There had been some debate previously on whether advertising expenses should be treated as assets as they clearly provide future benefits. However, given its unquantifiable nature, companies need to book advertising expenses all in one go in the period incurred.

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