什么是资本化？

What is capitalization?

Capitalization is an accounting method that works by incorporating costs into the value of an asset and spreading those costs over the asset's useful life, rather than directly expensing the costs in the period in which they are incurred. Capitalization treats cash expenditures as assets, reflected on the balance sheet, rather than as expenses, appearing on the income statement.

Capitalization can also refer to a quantitative assessment of a company's capital structure, including the company's cost of capital in the form of equity, long-term debt, and retained earnings.

Key Points

• In accounting, capitalization allows an asset to be depreciated over its useful life and reflected on the balance sheet rather than the income statement.
• Capitalization may refer to book value or the company's total debt and equity.
• An undercapitalized company does not have sufficient funds to meet all its obligations.

Type of capitalization

• Accounting: The matching principle requires companies to record expenses in the same accounting period in which the related revenue occurs. However, an asset may provide benefits to a business over multiple accounting periods and is usually a fixed asset such as an office building. The cost of these items is recorded in the general ledger as the historical cost of the asset. Therefore, these costs are capitalized rather than expensed. Capitalized assets are not fully expensed in the current accounting period. A company can make a large purchase but spread the cost over a number of years depending on the type of property, plant or equipment involved.
• Financial: Capitalization can refer to the cost of capital to book value, which is the sum of a company's long-term debt, equity, and retained earnings. An alternative to book value is market value, which is determined by the price of a company's stock. Market capitalization is the number of shares outstanding multiplied by the share price. If the total number of shares outstanding is one billion and the current share price is $10, the market capitalization is$10 billion. Companies with high market capitalization are called large-cap stocks.

Important Note: Because an asset is used over time to generate revenue for the company, a portion of its cost is allocated to each accounting period. This process is known as fixed asset depreciation and intangible asset amortization.

Capitalization threshold

Typically, a company sets a "capitalization threshold." If cash disbursements exceed this amount, they are capitalized if appropriate. Companies set capitalization thresholds because materiality varies by size and industry. For example, a small local store might set a capitalization threshold of $500, while a global technology company might set its capitalization threshold at$100,000.

Financial statements can be manipulated when costs are incorrectly capitalized or expensed. If costs are incorrectly expensed, net income for the current period will be lower than it should be and the company will pay lower taxes in the current period. If costs are incorrectly capitalized, net income for the period will be higher than it should be. Additionally, the assets on the balance sheet will be overvalued.

What is the difference between undercapitalization and overcapitalization?

A company may become over-capitalized or under-capitalized. Undercapitalization is when earnings are insufficient to cover the cost of capital, such as interest payments to bondholders or dividend payments to shareholders. Overcapitalization, on the other hand, refers to a situation where external capital is not needed because earnings are good and earnings are undervalued.

How does capitalization affect leased equipment?

For leased equipment, capitalization occurs by classifying the leased asset as a purchased asset and converting the operating lease to a capital lease, thereby reflecting the leased asset on the balance sheet as one of the company's assets. The Financial Accounting Standards Board (FASB) requires that all leases longer than twelve months be capitalized as assets and recorded as a liability on the lessee's books to reflect the rights and obligations of the lease. [1]

What expenses can be capitalized?

Expenses that will provide benefits in future periods should be capitalized so that the expense of the asset is recognized in the same period in which the benefits are received. Generally speaking, examples of expenses that can be capitalized include development costs, construction costs, or capital assets such as equipment or vehicles.

Summary

In accounting, capitalization refers to long-term assets with future benefits. By converting cost expense into time-based depreciation, expense is expensed when benefits are obtained. In finance, capitalization refers to a company's financing structure and its book value cost of capital.

References

[1] Financial Accounting Standards Board. “Leases (Topic 842),” Pages 2-3.

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