Why is the salary of a production worker capitalized while the salary of a marketing manger expensed?
The classification of salary expenses as either capitalized or expensed depends on the nature of the work performed by the employee and whether it directly contributes to the creation of assets or generates revenue for the business.
1. Capitalized Salary:
The salary of a production worker is typically capitalized because their work directly contributes to the creation of assets. Production workers are involved in manufacturing goods or providing services that are intended to be sold to customers. The cost of their salary is considered part of the cost of the inventory or goods produced, which are recognized as assets on the balance sheet. These costs are later expensed as goods are sold, typically through the cost of goods sold (COGS) account.
2. Expensed Salary:
On the other hand, the salary of a marketing manager is expensed because their work primarily focuses on promoting and selling products or services. While marketing activities contribute to revenue generation, they typically do not result in the creation of long-term assets. The expenses associated with marketing, including the salary of marketing personnel, are recognized as period costs and charged directly against revenues in the same accounting period.
It's important to note that the specific classification of salary expenses may vary based on the accounting standards and policies adopted by a company.