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Capitalise definition
Capitalise means to record a cost as a long-term asset on the balance sheet instead of charging it as an immediate expense on the income statement. A company capitalises a cost when it expects the spending to deliver value over more than one accounting period.
A capitalised cost is then spread across the asset's useful life rather than booked all at once. Tangible assets such as equipment are written down through depreciation, while intangible assets such as software or patents are written down through amortisation.
In accounting, capitalise is the opposite of expense. Expensing records the full cost in the current period and reduces this period's profit; capitalising defers most of that cost, so it can lift short-term profit even though the asset's cost is still recognised gradually over its life.
Capitalise Example
A company spends USD 100,000 on equipment it expects to use for five years. Instead of recording the full amount as an expense straight away, it capitalises the equipment as an asset.
Under straight-line depreciation, the company spreads the cost evenly across the five years:
USD 100,000 √∑ 5 = USD 20,000
The company records USD 20,000 of depreciation expense each year for five years.
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