Hello all, I’m having some trouble with the following concept A company purchases a new computer printer for the office. Its cost is $700. Your company is a small company, it might capitalize the cost of the printer. That means the printer will be included in an equipment account and will be reported in the property, plant and equipment section of the balance sheet. Its cost will be depreciated over the printer’s useful life. A larger company might decide that $700 is an immaterial amount and will not capitalize the printer as an asset. Rather, the large company will expense the printer immediately. Surely the printer would be carried as an asset after expensing? Where does the $700 go…does some one know the journal enteries for this $700…Surely all companies capitalize their purchases as assest? Thanks
" Surely the printer would be carried as an asset after expensing? " I don’t think so. The cost of the printer would be considered part of operating expenses. Like if a company buys a water cooler… That increases productivity but it probably won’t show on the books as an asset.
PP&A 700 \cash 700 Then it will depreciate annually. The printer will be an asset on your BS. Can you explain what it exactly is you don’t understand?
when something is expensed, it is NOT carried as an asset. re-read the section to get a better understanding of capitalizing and expensing
Exactly, that’s what i wanted to know, the journal enteries for the expensed item, in this case it was a printer. I’m know the one journal is CR Cash but what account is DR for the expensed printer? Cheers
This is what I understand. Expensing would mean Cash -> SomeExpenseAcct. This will be reflected purely as a drop in cash in the B/S, thus reducing the Owners Equity part on the right. Affects Income Stmt and CFO. In case of Capitalization, the Cash -> AssetAcct, the amount remains on the LHS of the B/S. Affects Income Stmt and CFI.
This is true! If a company decides not to capitalize FA than the other side of the entry would be expense account (probably depreciation). But I think it is also worth mentioning that although assets not material separately could me material when aggregated and than what the auditors ask companies to do is to restate financial statements especially as FA expensed are used for more than one year (would be the case for printer). It means that by expensing FA you understate income for a year and overstates expenses and at the same time understates FA.