Capitalization has multiple meanings. Capitalization is an accounting method where a value is included in the value of an asset and that asset is spent for a useful lifetime, not actually spent within the time it was spent. In addition to this usage, market capitalization refers to the number of outstanding shares multiplied by the share price, which is a measure of the total market value of a company. Instead of listing the asset as an expense, the asset is added to the company’s balance sheet and devalued over its useful life.
According to Guthman and Dougall, “capitalization is the sum of the par value of stocks and bonds outstanding”. “Capitalization is the balance sheet value of stocks and bonds outstands”
In accounting, capitalization allows the valuation of an asset for a useful life to be present on the balance sheet rather than a statement of income. In a sense, capital refers to the sum of a corporation’s stock, long-term debt, and retained earnings. Reserved earnings are the percentage of net income retained for reinvesting or repaying a loan in the company’s core business. Office supplies, for example, are expected to be consumed in the near future, so they are charged for one-time expenses. An automobile is recorded as a fixed asset and is charged for much more time spent through devaluation, since the car will be used for a longer period than the office supply.
The finance sector also uses the term capital to multiply the outstanding stock of a corporation by the share price of the stock. It is also called market capital. Capital is also based on material concepts. If a cost is too low, don’t bother with a series of accounting calculations and journal entries to capitalize on it and then gradually charge it over time. Market capitalization is the dollar value of a company’s outstanding shares and the current market value is calculated by multiplying the total number of outstanding shares. The amount of dollars under which items are automatically charged for spending is called the Capitalization Limit. The cap limit is used to keep records at a manageable level when capitalizing the bulk of all items that should be designated as fixed assets.
