Capitalizing fixed assets
Objective: Decide which costs are capitalized.
Recommended first: Your first journal entries
A fixed asset is recorded at cost: purchase price plus costs needed to get it ready for use, such as delivery and installation. Routine repairs are expenses. Many businesses set a written threshold below which small items are expensed; follow the stated policy.
Capitalization decisions affect profit. Capitalizing a cost spreads it over future periods; expensing it reduces this period's profit. Many small businesses adopt a written threshold to keep this consistent — items below it are expensed. Follow the stated policy, and record costs needed to make an asset ready for use as part of its cost.
Check your work
- Is the cost needed to get the asset ready for use?
- Does a stated policy require expensing small items?
- Are routine repairs expensed?
$5,000 oven + $200 delivery + $300 installation = $5,500 cost.
| Account | Debit | Credit |
|---|---|---|
| Equipment | $5,500.00 | |
| Cash | $5,500.00 |
Common mistakes
✗ Expensing installation costs.
✓ They are part of getting the asset ready for use.
Guided practice
Use hints freely here.
Item 1 of 1
Capitalize delivery and installation
On Mar 7, 2026, Rise & Shine Bakery pays $6,200.00 for a new oven, $130.00 delivery, and $210.00 installation, all in cash. Costs to get the asset ready for use are capitalized.
Checking answers on Pro items requires a Pro or Lifetime plan. See plans.
Independent practice
Try these without hints. Completing the lesson needs at least one independent item solved without revealing the answer.
Item 1 of 6
Buy equipment for cash
On Mar 1, 2026, Northlight Design Studio buys a large-format printer for $1,100.00, paid immediately by bank transfer.
Progress is saved on this device. Create a free account to keep it everywhere.
References and provenance
- OpenStax, Principles of Accounting, Volume 1: Financial Accounting (accessed 2026-10-29)
Original lesson written for Bookkeeping Exercises (AI-assisted drafting). Calculations are verified by the platform's automated accounting tests. Not yet reviewed by a credentialed accountant. Updated 2026-10-29.