Costs of Capitalizing and Depreciating Business Expenses

The Value of Capitalizing and Depreciating Business Costs

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Question

Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting periods.

Answers

A. To reduce the federal income tax liability.

B. To adhere to the concept of conservatism.

C. To aid management in the decision-making process.

D. To match the costs of production with the revenues as earned.

E. To maximize accounting income.

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Explanations

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A. B. C. D. E.

If costs benefit more than one accounting period, they should be systematically and rationally allocated to all periods benefited. Matching refers to the process of recognizing expenses over the periods where revenues have benefited from these expenses.

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