Register now or log in to join your professional community.
Costs should be capitalized or recorded as assets when the costs have not expired and they have future economic value. For example, on November25 a company pays $12,000 for property insurance covering the six months of December through May. The $12,000 is initially recorded as the current asset Prepaid Insurance. On November30 the company will report this asset at $12,000 since the $12,000 has a future economic value. (It will save making future payments of cash for insurance coverage.) On December31 the asset will be reported as $10,000---the unexpired cost. It will also report Insurance Expense for the month of December as $2,000---the cost that has expired during December. On January31 the asset will be reported at the unexpired cost of $8,000. January's insurance expense will be $2,000---the amount that has expired during January.
