1. Initial expenditures on raw materials, direct labor, and overhead are CAPITALIZED (recorded as assets) in Work in process and finished goods inventory. ... They are transferred to expense accounts when the finished goods are sold (they go to cost of goods sold).

What are Capitalised overheads?

Capitalized costs are incurred when building or purchasing fixed assets. Capitalized costs are not expensed in the period they were incurred but recognized over a period of time via depreciation or amortization.

What expenses should be capitalized?

All expenses incurred to bring an asset to a condition where it can be used is capitalized as part of the asset. They include expenses such as installation costs, labor charges if it needs to be built, transportation costs, etc. Capitalized costs are initially recorded on the balance sheet at their historical cost.