Capitalising an Asset

Some Of the nominals and ledgers used in this topic may be different to those in your chart of accounts.

Capitalisation is the addition to the Balance Sheet of an Asset that could otherwise have been treated as an expense. In general, the capitalisation of an Expense is used in relation to the acquisition of a new Asset that is a long-term cost, rather than an expense for only one year, and where the cost is spread out over a specific period of time.

There are two adjustments that need to be made at this stage to change the purchase from an Expense to an Asset.

Adjustment 1 – Moves the Expenditure to the Balance Sheet

To complete this stage, post a General Journal.

• Credit the Cost Centre Ledger account and nominal used for the purchase.

• Debit the relevant Fixed Asset at Cost nominal on the appropriate Fixed Asset Ledger account.

Adjustment 2 – Transfers the funds from Revenue to Capital

To complete this stage, post a General Journal

• Debit the Cost Centre used for the purchase via the - Revenue Contribution to Capital nominal.

• Credit the relevant Capital Ledger account via the - Contribution from Revenue nominal