Accounting Capitalization Policy de minimis (Expense or Capitalize Fixed Assets)

Quick overview of capitalization

To capitalize an asset is to put it on your balance sheet instead of “expensing” it. So if you spend $1,300 on a piece of equipment, rather than report a $1,300 expense immediately, you list the equipment on the balance sheet as an asset worth $1,300. Then, you depreciate the asset over its useful life (ex: 5 years for computers), taking a depreciation expense each year and reducing the balance-sheet value of the asset by the amount of the expense. The process of capitalization essentially allows your company to spread the cost of the asset over its useful life and avoid drastic impacts to the income statement in the period the asset was purchased.

To expense an asset below $2,500 you need to adopt a policy, which if you would like to do that, please email or contact us HERE.