Ask Joey ™ a Question

Why is capitalized labor a negative expense on the income statement?

Most companies have a separate trial balance account to record any labor that has been capitalized (under ASC 350). Basically, the company would have the salaries of the internal employees flowing through the salary expense account as normal.

However, for the wages that were capitalized, they are a negative expense (i.e. reduce expense) because they are being removed from the income statement and being capitalized to the balance sheet. Those wages will then be depreciated over the useful life and will flow through depreciation expense.

You might also be interested in...

  • Are research and development costs capitalized or expensed?

    Accounting for research and development costs will generally be expensed in the income statement unless there is alternative future use or if the company was hired to perform the research. If there is an alternative future use, or the company was hired to perform the research, then those costs can be capitalized onto the balance […]

  • What are capitalized software costs?

    Capitalized software costs could be composed of 3rd party costs or labor costs. These are basically costs incurred by the company to produce technology that will be sold to the general public. As you can see in the visual below, once technological feasibility is achieved, the company can capitalize certain costs until the product is […]

  • Are capital expenditures included in EBITDA?

    No, capital expenditures relate to the purchase of physical assets/equipment for the business. The cost is capitalized into PP&E and then depreciated over the useful life of the asset. Since depreciation expenses is added back to net income to calculate EBITDA, then capital expenditures are excluded. However, capital expenditures are included in the investing section […]