What is a Capitalized Cost?

Capitalized costs are expenses added to the cost basis of fixed assets on a company's balance sheet, not expensed in the period they were incurred but recognized over a period of time via depreciation or amortization. Long-term assets are depreciated or amortized over a long period in order to match the cost of the asset to the periods in which it is used and generating revenue. Capitalizing costs allows companies to follow the matching principle of accounting, record expenses in the same period as the related revenues, and smoothly spread out expenses over multiple periods. However, inappropriately capitalizing costs may lead to misleading investors and potentially higher tax bills.
a6ee