Question

Costs of an asset that produce future benefits are ______, but costs that produce benefits only in the current period are ______?

1) capitalized; expensed
2) current assets; noncurrent assets
3) expensed; capitalized
4) operating activities; investing activities

Answer 1

Costs for assets providing future benefits are capitalized, while costs providing only current period benefits are expensed.

Step-by-step explanation:

The costs of an asset that produce future benefits are capitalized, but costs that produce benefits only in the current period are expensed. Capitalization is the recording of a cost as an asset, rather than an expense, which spreads the recognition of that cost over the asset's useful life. For example, when a firm buys a machine with a useful life of 10 years, the cost is capitalized and depreciated over those 10 years. On the other hand, expenses such as utilities or rent that provide immediate benefits are recorded as expenses in the current period.