accountants may

be expenses. Examples are publications, office supplies and small equipment. However, when items purchased are expensive and will last more than a year, they may be capitalized -- they are NOT expensed. Examples of often capitalized items are furniture, real estate and large equipment.

Many companies have policies and procedures regarding capitalization and depreciation processes to maintain the consistency and reliability of financial reports. For instance, a firm may have a pAir Max shoesolicy of capitalizing all business equipment that cost $5,000 or more. This means that the income statement will NOT show equipment expenses of $5,000 or more. Without a set policy, accountaPuMa shoesnts may capitalize items at random, creating confusion and making financial statements not comparable over periods of time. The journal entry to capitalize an asset is Debit an asset account and Credit "Cash" or "Accounts Payable"

Once a purchase is capitalized, it is expensed in small amounts for the life   Boots shoes   of the item. For example, an equipment cost $10,000 and has an expected life of 10 years. Using a simple MBT shoesmethodology called straight-line, the shox shoes equipment will be expensed about $1,Ugg Boots shoes000 a year. After 10 years, the equipment will be fully depreciated. The journal entry to recognize depreciation is

Debit "Depreciation Expense," and Credit "Allowance for Depreciation," a contra

14.1.11 02:29


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