2 min read
Definition
Capitalisation records qualifying expenditure as a fixed asset on the balance sheet, then charges it to profit over time through depreciation or amortisation, rather than expensing it immediately.
In plain terms
Buy a £40,000 machine and you do not take a £40,000 hit this year — you capitalise it and spread the cost. But routine repairs are expensed, not capitalised.
Why it matters for your company
Where you draw the line changes reported profit and asset values. Over-capitalising flatters profit; under-capitalising depresses it. Consistency keeps lenders comfortable. See matching principle.
Related reading
Fixed asset
A fixed asset is a long-term asset you use to run the business — property, plant, vehicles — not one you sell…
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Depreciation schedule
A depreciation schedule spreads the cost of a fixed asset across its useful life in your accounts — matching…
Read →Amortisation schedule
An amortisation schedule is the table breaking every repayment into interest and capital, showing how the…
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Matching principle
The matching principle recognises costs in the same period as the income they generate — the idea behind…
Read →Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.