What constitutes a leasehold improvement?
What is the advantage to record something as leasehold improvement versus operating expense?
Leasehold improvements are improvements made to a leased/rented premise such as renovating the leased space to meet the business's needs prior to moving in.
By nature, they have a value lasting more than one year. Usually it includes things such as painting, laying carpet, installing a coffee center for employees, hanging window treatments, or changing light fixtures.
Depending on the contract, leasehold improvements can be removed at the end of the lease if it does not harm the premises.
Leasehold improvements must be capitalized and not expensed. This means they sit on the balance sheet and are depreciated / amortized over time, matching the expenses with revenues.