The difference between expensing and capitalizing has to do with the nature of the expenditure. If the cost is for an ordinary and on-going type of expenditure, then you need to expense it. If the cost is for a long-lived item and is fairly expensive, you will want to capitalize it and depreciate it over its useful life.

Some examples of expenses would be office supplies or phone service. Some capital items would be computers or a phone system. Generally a company will set a minimum level for capitalizing costs. The larger the company the higher the minimum level. Large companies may expense anything under $3,000, while a smaller company might expense items under $500.

Another consideration would be if you are using accrual based accounting or cash based accounting. Most cash based accounting systems expense everything at the time it is purchased. Accrual accounting seeks to match expenditures with revenue and spreads the cost of the asset over the revenue period.

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