Capitalization
Definition
Recording an expenditure as an asset and spreading its cost over future periods through depreciation or amortization, instead of expensing it immediately. It applies to spending that provides benefit beyond the current period.
Related Terms in Core Accounting
Closing the Books
The end-of-period process of finalising the accounts — posting adjustments, reconciling balances, transferring revenue and expense balances to retained earnings, and locking the period so reports are stable.
Opening Balance
The balance in an account at the start of a period, carried forward from the close of the prior period. Correct opening balances are essential when migrating to new accounting software.
Posting
The step of transferring amounts from journal entries into the individual accounts of the general ledger. In modern software, posting happens automatically when a transaction is recorded.
Reversing Entry
A journal entry made at the start of a period to cancel a specific adjusting entry from the prior period, simplifying the recording of the actual transaction when it occurs. It prevents double counting of accruals.
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