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F. Naz
F. Naz, Bachelor's Degree
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capitalizing fixed assets and the affect on balance sheet

Resolved Question:

What do accountants mean by capitalizing fixed assets and how does that affect the balance sheet and the income statement? 50-100 words
Submitted: 5 years ago.
Category: Business and Finance Homework
Expert:  F. Naz replied 5 years ago.

MJA1415 :

All assets are nothing but payment in advance for future expenses. If they are for less than one year then it is recorded under current assets. But if they are for more than one year then they are recorded as fixed assets. It means that the payment made is capitalized by recording as fixed assets as the benefits has to be taken for more than one year. But when the fixed assets are being used over they time they are being transferred gradually to expense, which is known as depreciation expense. The recording of payment for fixed assets increases the total fixed assets and decreases the current assets, if payment has been made in cash. When the depreciation is recorded, it increases the expense in income statement and decreases the value of particular fixed assets by the same amount.

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