Accounting In Business Accounting

1413 Words6 Pages
Business owners need to make many big accounting decisions and what the company does with costs is among the biggest of these decisions. When companies spend money, they are often able to either account to the costs as an expense or to capitalise the costs. The decision will have an impact on the company’s balance sheet. This guide will look at what capitalising vs. expensing is all about, and delve deeper into the situations when companies should capitalise and when to expense. The guide will also look at the effect it has on the financial statements and the limitations of either method. Finally, you’ll also learn about the inappropriate use of the system and how to ensure your business’ accounting tactics are within the legal framework.…show more content…
On the other hand, when a business capitalises a cost, it is going to count towards capital expenditures. This means it will be accounted for on the entity’s balance sheet as an asset. In this case, the income statement will only feature the appropriate depreciation of the asset. There are currently only guidelines to help businesses decide which costs could be capitalised and which could be expensed. No mandatory rules exist, although there are some legal loopholes to be aware of. Therefore, each company has some leeway into deciding what it wants to capitalise and to expense. As we’ll discuss later in the guide, this lack of objective set of lists has both advantages and disadvantages to a business. Capitalising vs. expensing provides companies with opportunities to influence the company’s profits, directly influencing over the income statement. There have been some instances where companies have used capitalising vs. expensing against the common accounting procedures. While this might influence the short-term profits of the company, it can also do damage to the company’s finances. Certain practices might also be outright

More about Accounting In Business Accounting

Open Document