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BUSINESS ADVISOR
You buy the new equipment that the new surgeon wants. We shopped
around and found one for $47,000 that would meet her needs.
Everyone's happy (enough), as the price tag could have been higher.
But now that you've found the microscope and bargained with the
manufacturer to get the best price, you have a choice: How do you
want to internally "pay" for this piece of equipment? Due to the cost
and type of equipment in this case, we could either capitalize it or
expense it.
Is it an "asset" or an "expense"?
Capitalizing the microscope means converting it to an asset on the
balance sheet for our facility (and lets us call it a piece of "capital
equipment"). For example, if the facility pays $47,000 for the microscope, its financial statements don't show that it "spent" $47,000.
Rather, the statements show the facility converted $47,000 worth of
cash into $47,000 worth of equipment (the microscope), into an
asset. This means that the value of the asset is retained by the facility.
Expensing the microscope, on the other hand, would mean the facility reports the purchase on the income statement as an outflow of
money — that is, as a dreaded expense. If a facility pays $14,000 for
rent, for example, its financial statements show that money as having
been "spent." Expenses directly reduce a company's net income, or
profit, so the more costs you can capitalize rather than expense, the
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O U T PAT I E N T S U R G E R Y M A G A Z I N E O N L I N E | D E C E M B E R 2012