Accounting Rules for Capitalizing Assets
The Governmental Accounting Standards Board has established standards for companies to use when capitalizing assets. By specifically defining what falls into different asset categories, you can more easily understand how to go about capitalizing assets for your records. This information is useful for both business tax and general record-keeping purposes.
According to the GASB's generally accepted accounting principles, capitalized assets include tangible and intangible assets you acquire for your business with the intent to turn a profit. These capitalized assets also must be expected to last longer than one year and do not include consumable items such as reams of paper, pens and other supplies. When calculating capitalized assets, you should include any associated sales taxes, legal fees and other fees you have paid during acquisition that are not otherwise reimbursed.
Tangible assets include equipment, property and land you acquire for business use. Company vehicles, desks and specialty equipment are some of the items that are included. A printer would be included, but ink or toner cartridges for that printer would be considered consumable supplies and not eligible for capitalization. Capital improvement costs could also be considered tangible assets. For example, if you renovated a bathroom to make it compliant with the Americans with Disabilities Act, the costs associated with that renovation could be capitalized.
Intangible assets include processes separate from the purchase of tangible items. For example, if you purchase land, any fees you pay that are associated with that initial land purpose should be capitalized as part of that purchase. However, if you acquire additional land rights after that initial purchase, they’re considered a separate asset that is intangible in nature. Computer software expected to be used for longer than a year may also be considered an intangible asset.
In addition to the GAAP rules and definitions, your state and employer may have specific rules regarding accounting for the reporting of capitalized assets. For the most current and accurate information, contact an accounting professional who specializes in asset capitalization in your area. She will be able to answer any questions you have and should be up to date on the latest changes to standards and laws that affect asset capitalization in your area.