Capitalize is a verb that mean to draw advantage from something. In business, to capitalize means turning a cost into an asset, usually by increasing the business’ level of income or valuation of property and/or equipment, rather than an expense.
A good example of capitalizing an asset and/or expense would be the acquisition of a rental property. Instead of renting an office space, which would place the amount paid out for rent under expenses, buying the property would result in capital buildup since the property would now be listed as a long-term asset.
The money paid out for the purchase of the property would be listed under expense, but would be offset by the fact that the property is now an asset owned by the company. Furthermore, as the valuation of the property increases over time the purchased property would contribute to capital buildup.
Note that capitalizing specifically prefers to purchasing assets with a long-term lifespan in order to spread out the cost. A company should not capitalize regular operating expenses such as office supplies, as that does nothing for capital buildup. The practice of reflecting purchases made as part of regular operating expenses under assets is unethical, though this sometimes done to “cook the books.”
