Purchased Equipment on Account Journal Entry

Equipment is the assets that company purchase for internal use with the purpose to support business activities.  They are not for resale. They include the computer, vehicle, machinery and so on.

Purchasing new equipment can be a major decision for a company. It is important to evaluate all of the options and make the best decision. There are many factors to consider when making this decision, such as the cost of the equipment, the needs of the business, and the capital required.

When purchasing equipment, it is important to compare prices and research different brands. It is also important to have a clear idea of what the equipment will be used for. If it is not necessary to purchase new equipment, it may be wise to consider renting instead.

If there are no goals or plans for growth then it may not be necessary to purchase. Renting equipment may be a better option because it requires less of an initial investment. It allows the company to change assets if necessary. Renting also allows the company to use the capital to invest in the core business.

It is important to consult with an accountant or financial advisor before making any decisions about purchasing new equipment. They can help you understand how much the equipment will cost if it is worth the expense, and how it can affect your tax situation.

The company needs to classify equipment into fixed assets which will be present on the balance sheet. They will be depreciated to expense based on the useful life.

Purchased Equipment on Account Journal Entry

When the company purchases equipment, the accountant records it into the balance sheet under fixed assets section. They also record the accounts payable as the purchase is made on the account. They need to settle the payable later.

The company may need to look at the criteria to capitalize fixed assets as follows:

• Useful life is more than a year: The items must be able to use for more than a year otherwise they will be classified as current assets.
• Illiquid: The assets are not easily converted to cash.
• They can be depreciated: The items will depreciate base on usage.
• They can provide future economic benefits to the company.

The journal entry is debiting fixed assets (equipment) and credit accounts payable.

The equipment account will depend on the nature of assets which can be machinery, computer and so on. They are classified as fixed assets due to the nature of assets and company policy.

Purchased Equipment on Account Journal Entry Example

Company ABC purchase a new coffee machine cost $ 2,000 for the office on credit. Base on the company, the machine will be able to use for 3 years. The fixed assets policy is to capitalize any items that cost over $ 1,000 and useful life more than a year.

Please prepare a journal entry for this purchase.

The coffee machine should be capitalized as fixed assets because:

• It is expected to use more than a year,
• The cost is measured reliably
• It is higher than company capitalized policy

The journal entry is debiting fixed assets (equipment) and credit accounts payable.

The coffee machine will be present as equipment under the fixed assets section on balance sheet. It will be depreciated based on useful life of 3 years. Accounts payable will be reversed when the company makes payment to the supplier.