All of these are “consumed” during the cost’s reporting period, meaning no value is left over for the company to report. Depending on how they’re recognizing job revenue, lumber or paint used on a regularly invoiced project wouldn’t fit the bill either. They expect to use it for more than one fiscal period.įor example, Build-It Construction Co.’s equipment rental doesn’t fit those two criteria above.They’ll use the purchase for generating revenue.In other words, they decide that it’s a long-term investment called a capital expenditure. Generally, companies capitalize when they expect to use the value of a purchase over a long period of time. When to Capitalize Costs During Construction In short, capitalizing rather than expensing will show higher profits on the P&L with higher taxes up front.
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