The purchase of equipment is not accounted for as an expense in one year; rather the expense is spread out over the life of the equipment.
This is called depreciation.
From an accounting standpoint, equipment is considered capital assets or fixed assets, which are used by the business to make a profit.
Is equipment an asset or expense?
Equipment is not considered a current asset even when its cost falls below the capitalization threshold of a business. In this case, the equipment is simply charged to expense in the period incurred, so it never appears in the balance sheet at all – instead, it only appears in the income statement.
What type of account is equipment?
|FEDERAL INCOME TAX PAYABLE||Liability||Decrease|
|FEDERAL UNEMPLOYMENT TAX PAYABLE||Liability||Decrease|
|FREIGHT-IN||Part of Calculation of Net Purchases||Increase|
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How do you account for equipment purchases?
Accounting for Equipment Purchase
When you purchase the equipment, all entries made to account for the purchase appear on your balance sheet, not your income statement. Debit the appropriate asset account, such as plant equipment or office equipment, for the full amount of the purchase.
Is equipment depreciation an expense?
Each year, $1,000 of the equipment’s cost will be counted as an expense. Accumulated Depreciation is what’s known as a “contra account,” or more specifically, a “contra-asset account.” In the example above, after the first year of depreciation expense, we would say that Equipment has a net book value of 4,000.