Define of Capitalization

When an asset is acquired by a company and its value is recorded as a cost and not an expense, it is known as capitalization. Capitalization is used when the value of the asset is not completely used or consumed in a single period, but for a longer period of time. Let’s take an example; if we talk about stationary in an office, they are consumed in a very short time or maybe near future. Let’s say a company buys a computer for $300. The computer will provide its service to the company for more than the year it was purchased (let’s say 5 years estimated). So the company will charge the cost of the computer gradually over the years it will give its service.
The concept of capitalization works on the concept of materiality. If a cost seems too small to the organization, it will charge it as an expense in the same period it was incurred and save itself from a lot of future calculations and journal entries that would have been done if the cost was broken down over the lifespan of the asset .If the size of the company is large, $300 would be a very immaterial amount and it would charge the expense of the computer in the same period. However, if the size of the company is small, it would charge the cost of the computer gradually over a period of time.