Initial recognition of assets, i.e. property, plant and equipment items or intangible assets like software etc. doesn\u2019t differ much from when you recognize inventory for an example. It\u2019s the subsequent measurement that\u2019s more complicated when it comes to accounting those types of assets.\u00a0<\/p>\n
Let\u2019s say you bought a car as your tangible asset. It cost you 10,000 euros and you expect to use it for 5 years. Using very simple methods when it comes to treating PPE items (note here that we have a separate course about accounting for PPE items which includes more detailed guides) your initial entry would be as follows:<\/p>\n
Db Machinery (or any other suitable PPE account on the balance sheet) 10,000<\/i><\/p>\n
Cr Accounts payable 10,000<\/i><\/p>\n
With this you\u2019ve shown on your balance sheet that you own an asset and that you still have to pay for it. Now as it\u2019s an asset you will be using over a period, this case 5 years, this cost should be spread to expenses over this period. Mathematically it\u2019s 10,000 \/ 5 = 2,000 euros per year. Your monthly expense would be 2,000 \/ 12 = 167 euros. As such, your monthly entry is as follows:<\/p>\n
Db Depreciation expense 167<\/i><\/p>\n
Cr Accumulated depreciation (an account on the balance sheet just with PPE accounts to decrease their cost value) 167<\/i><\/p>\n
And with this you\u2019ve started to decrease asset\u2019s cost value and show it as an expense. Essentially buying an asset you use for a longer period than a year is an expense, but rather than showing it initially in full in expenses, it makes more sense to show the expenses in the period the asset is really being used, i.e. when it participates in creating revenue.<\/p>\n","protected":false},"excerpt":{"rendered":"
Initial recognition of assets, i.e. property, plant and equipment items or intangible assets like software etc. doesn\u2019t differ much from when you recognize inventory for an example. It\u2019s the subsequent measurement that\u2019s more complicated when it comes to accounting those types of assets.\u00a0<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25,35],"tags":[],"class_list":["post-4128","post","type-post","status-publish","format-standard","hentry","category-1-basic-accounting","category-1-7-basic-entries"],"aioseo_notices":[],"_links":{"self":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/4128","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/comments?post=4128"}],"version-history":[{"count":2,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/4128\/revisions"}],"predecessor-version":[{"id":4132,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/4128\/revisions\/4132"}],"wp:attachment":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/media?parent=4128"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/categories?post=4128"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/tags?post=4128"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}