Definition of Capitalize
Definition of Depreciate
Example of Capitalize and Depreciate
Assume a corporation is self-constructing a new building next to its existing building. The corporation borrows the money for the construction from its local bank. The accounting rules state that the interest incurred for self-constructing the building should be added to the cost of the building. (The FASB refers to this as the capitalization of interest.)
Once the building is put into service, the building's cost (including the capitalized interest) is depreciated over its useful life.