Accounting for assets that are capitalized vs expensed

[pdiddy]

if you were to capitalize a construction instead of expensing your debt-equity goes down. Can someone explain this conceptually?

If D/E = LT debt/ equity, shouldnt LT debt go up (the liability to offset the increase in assets)? also while assets go up, and liability too how does this impact Equity?

what am i missing?!!

 

[satyaa]

If you capitalize any costs, basically you spread it over time. Suppose you buy an equipment and expense it your Net Income will be low since you expensed all the cost. If you had capitalizedityou would have deductd a portion of your total cost. As a result your NI would be high which would result in higher equity.

When you but an asset it goes towards PP&E and not towards LT debt.

Since, your debt remains the same and your equity is high your D/E is lower.

Hope this helps

 

[pierovic18]

Capitalization means asset / equity
financial lease means asset / debt