When building your start-up business, equipment is purchased to get you started. When it's time to lease office space additional equipment is purchased to keep the business moving forward. How are business owners accounting for these purchases. Learn more about the best practices and an example below.
The purchase of equipment that will be used in a business is not reported on the profit and loss statement. However, the depreciation of the equipment will be reported as depreciation expense on the profit and loss statements during the years that the equipment is used.
For example, if a company buys equipment for $100,000 and it is expected to be used for 10 years, the company's profit and loss statements will report depreciation expense of $10,000 in each of the 10 years (assuming the straight-line method of depreciation is used).
The purchase of equipment is shown on the statement of cash flows for the period in which the purchase took place. The equipment will also be reported on the company's balance sheets at its cost minus its accumulated depreciation.
The profit and loss statements are also known as income statements, statements of operations, and statements of earnings.
Establishing policies and procedures to ensure the accounting process for reporting equipment purchases is a key tool to avoiding company losses in the future. Visit our website today to schedule your appointment.
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