Final answer:
When a company builds a new building, the costs associated with the construction should be capitalized and not expensed. These costs include the purchase of land, construction materials, labor, permits, and other expenses directly related to building the new structure. By capitalizing these costs, the company spreads the expenses over the useful life of the building through a process called depreciation.
Step-by-step explanation:
When a company builds a new building, the costs associated with the construction should be capitalized and not expensed. Capitalizing means that the costs are recorded as an asset on the company's balance sheet instead of being immediately recognized as an expense on the income statement.
These costs include the purchase of land, construction materials, labor, permits, and other expenses directly related to building the new structure. By capitalizing these costs, the company spreads the expenses over the useful life of the building through a process called depreciation.
Depreciation allows the company to allocate a portion of the building's cost as an expense over time, typically using the straight-line method.