Capitalization Accounting Method Law and Legal Definition

Capitalization accounting method means an accounting method where the present value of the assets is determined by discounting its stream of expected future benefits at an appropriate release. In the capitalization accounting method, the appraiser uses the average of an accumulation of earnings, normally at least two years, and then discounts the average earnings and multiplies that by an appropriate capitalization factor. Since the capitalization method generally results in a lower variance of reported earnings when compared with the expensing method, high-growth firms mostly prefer the capitalization method.