Course Outline
Join PRO

What is the difference between the terms capitalize and depreciate?

Harold Averkamp, CPA, MBA

Definition of Capitalize

In accounting, the term capitalize refers to adding an amount to the balance sheet as an asset (as opposed to immediately reporting the amount as an expense on the income statement).

Definition of Depreciate

The term depreciate refers to systematically moving part of the cost of a plant asset from the balance sheet to depreciation expense on the income statement.

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.

Join PRO to Track Progress
Must-Watch Video

Learn How to Advance Your Accounting and Bookkeeping Career

  • Perform better at your current job
  • Refresh your skills to re-enter the workforce
  • Pass your accounting class
  • Understand your small business finances
Watch the Video

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,645 reviews



PRO Plus

Lifetime Access (One-Time Fee)
Word Scrambles
Bookkeeping Video Training
Financial Statements Video Training
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on

Learn More About Harold

Certificates of

Certificates of Achievement

We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping:

  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Payroll Accounting
Badges and Points
  • Work towards and earn 30 badges
  • Earn points as you work towards completing our course
View PRO Plus Features
Course Outline
Take the Tour Join Pro Upgrade to Pro Plus