Title: How to Account for Capital Improvements | Bizfluent
Headings: How to Account for Capital Improvements
How to Account for Capital Improvements
Record the Capital Improvements
Record Depreciation
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Content: How to Account for Capital Improvements | Bizfluent
How to Account for Capital Improvements
Jupiterimages/BananaStock/Getty Images
By: Kaye Morris
Updated September 26, 2017
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Capital improvements are improvements made to real property, such as an office building, that extend the useful life of the object for more than 1 year. The Internal Revenue Service sets forth guidelines for classifying items as capital improvements versus repairs and maintenance. Capital improvements are considered fixed assets, and the cost of the improvement is expensed over the useful life of the improvement, while repairs and maintenance are expensed when paid or incurred. Record the Capital Improvements
Create an account in the Fixed Asset section of the general ledger that designates the type of improvement. For example, improvements to the office building would be “Building Improvements.” Record the entire amount of the capital improvement cost as an increase to the Improvements general ledger account. 00:00
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Record the entire amount of the capital improvement cost as a decrease to the checking account used to pay for the improvement. Record Depreciation
Determine the useful life of the improvement as designated by the Internal Revenue Service (IRS). For example, the useful life of a fence is 15 years.