How would you recognize a payable for a property, plant and equipment item? You essentially bought from your supplier an item you’ll be using for a longer period to either produce something or generate economic benefits for your business and now you have to recognize the purchase within your accounts.
Say for our example that you acquired a car for 10,000 CU which you haven’t paid yet. Your accounting entry would be something as follows:
| # | Debit-Credit | Account name | Amount |
| 1 | Debit | Property, plant and equipment (Machinery subgroup if applicable) | 10,000 |
| Credit | Payable to suppliers | 10,000 |
Whilst the above was rather straightforward, what if you also made a prepayment for the purchase earlier? Say that from this 10,000 CU you had already prepaid 2,000 CU. In such a case you’d make the following entries:
| # | Debit-Credit | Account name | Amount |
| 1 | Debit | Property, plant and equipment (Machinery subgroup if applicable) | 10,000 |
| Credit | Prepaid property, plant and equipment | 2,000 | |
| Credit | Payable to suppliers | 8,000 |
If you make a prepayment for a Property, plant and equipment item, you’d recognize the prepaid amount within the Property, plant and equipment group on the balance sheet (your initial accounting entry is Db Prepaid property, plant and equipment, Cr Cash and cash equivalentsas you’re actually paying money). Once you’re actually buying the item, this prepayment is credited and you debit the actual item group in full (in our example you credit the prepayment for 2,000 CU and debit the group the asset belongs to for 10,000 CU).
As for the payable amount, since from the total cost of 10,000 CU you’ve already paid 2,000 CU, you’re only liable for an additional 8,000 CU.