Capitalising expenses

• Overall


  refers to the process of adding a capital expense to the balance sheet as an asset rather than an expense

  Some assets are difficult to value e.g. goodwill (value of businesses reputation). They may be overvalued on the balance sheet or not included at all. Isn’t a true and accurate representation of the business

  As such, capitalising expenses limits the accuracy of financial reporting
• Example


  For example, a business may represent research and development as an asset on the balance sheet, rather than an expense. R and D is an expense, as it requires capital to complete. However, they may record it as an asset because of the value it holds and potential profitability it eventually will create