Example, if a business buys a car that it will use to deliver its products, and it is expected that the car will be used for the next 10 years to do so, then it wouldn't make sense to recognize the entire expense of the car upon purchase (as it will be used to deliver product - thus generate revenue - for the next 10 years). In this example, the car should be "capitalized" and then depreciated over its useful life. That is, we should recognize it on the balance sheet (as a fixed asset) then depreciate a portion of its value periodically (i.e., recognize a depreciation expense on the income statement).
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Jul 13th, 2014
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