What is capitalized interest and when is it used?

[Winter]

I came across capitalized interest in financial statements. What does it mean, and why do companies capitalize interest instead of expensing it?

 

[Kevin]

Capitalized interest is the cost of borrowing that is added to the value of a long-term asset instead of being recorded as an expense immediately. It is used when constructing or acquiring assets like buildings or machinery, so the interest becomes part of the asset’s cost and is depreciated over time.

 

[Blaise]

Capitalized interest is interest added to an asset’s cost instead of expensed. It’s used for long-term asset construction (e.g., buildings, machinery) during the build period. This follows the matching principle, spreading interest cost over the asset’s useful life through depreciation.