Capitalisation of operating costs
Definition
The misclassification of a period cost as a long-lived asset. Instead of recognising the full cost on the income statement in the current period, management records it on the balance sheet and charges only depreciation or amortisation over time, inflating current earnings.
Related terms
- Accrual omission
- The failure to recognise a liability at period-end for services received but not yet invoiced, or for costs incurred but not yet...
- Capital expenditure (capex)
- Spending that provides an economic benefit over more than one period, capitalised as an asset on the balance sheet and expensed through...
- Contingent liability
- A potential obligation whose existence depends on a future uncertain event, such as pending litigation or a guarantee given to a third...
- Cookie-jar reserve
- An accounting reserve built up in a period of strong earnings by overstating provisions or allowances, then released in a later period...
- Cut-off testing
- An audit procedure that examines transactions immediately before and after the period-end date to verify that each is recorded in the correct...
- Off-balance-sheet financing
- Any arrangement that keeps debt or obligations from appearing on the consolidated balance sheet, including special-purpose entities, sale-and-leaseback structures, and operating leases...
- Operating expense (opex)
- Costs consumed in the current period, expensed in full through the income statement. Reclassifying opex as capex defers the income-statement impact across...
- Reserve manipulation
- The use of discretionary accounting provisions, such as allowances for doubtful debts or warranty accruals, to manage reported earnings by setting reserves...
- Special-purpose entity (SPE)
- A legal vehicle created by a sponsoring company for a specific purpose, such as securitising assets or financing a project. Under certain...
Explained in
- Expense Understatement and Liability ManipulationThe misclassification of a period cost as a long-lived asset. Instead of recognising the full cost on the income statement in the current period, management re...