Accounting Treatment of Costs

Overview

The concepts of fixed versus variable costs are more than just a theoretical constructs. Accountants use these ideas when accounting for expenses.

• Fixed Costs - items that are purchased by a firm which have a lasting value, that is, they are useful for an extended period of time, are classified as capital expenditures and recorded as an asset on the books. The asset is expensed over time as depreciation.
• Variable Costs - expenses which are used up quickly are recorded immediately as an expense.