Journal Entry for Equipment Purchase

Equipment refers to the machines, furniture, tools, and other physical items that are used in order to operate a business. This can include everything from manufacturing machinery, tool, and other equipment. In order to function properly, businesses need to have the right equipment in place.

This may require making a substantial upfront investment, but it is essential for long-term success. Without the proper equipment, businesses will be unable to produce goods or services, ship orders, or communicate with customers. In short, equipment is an essential part of any business and should be given careful consideration before any major decisions are made.

The equipment is recorded as fixed assets on the company balance sheet. Fixed assets are important because they provide long-term economic benefits to a company. The equipment will generate future revenues and cash flows, which will increase the value of the firm. The use of equipment also reduces the need for other inputs, such as labor or raw materials. In addition, the equipment can be used to produce new products or services, which can create new markets for the firm. As a result, fixed assets play a critical role in the success of a business.

The equipment is the type of fixed asset that will be depreciated over the expected useful life. It is the way that we allocate the cost of purchasing assets to the expense on the income statement.

Journal Entry for Equipment Purchase

The company will require to record the fixed assets when risk and rewards transfer from the sellers. The company expects to generate future economic benefits from the fixed assets and it expects to last for more than a year.

The recording of fixed assets on balance sheet is not related to the payment to the supplier.

The journal entry is debiting fixed assets and credit accounts payable or cash.

It will increase the fixed assets balance on the financial statement. It also increases the liability account if the payment is not yet made. If the payment is already made, it will reduce the cash balance.

Example

Company ABC has purchased the production equipment to support the operation. The equipment cost $ 13,000 and expect to use for 5 years. The company has received the equipment and not yet making payment to the supplier. Please prepare journal entry for equipment purchase.

The company has purchased the equipment, and it has already been received. They have to record the fixed assets on the balance sheet. As it is a credit purchase, it will record the accounts payable as well.

The journal entry is debiting fixed assets $ 13,000 and credit accounts payable $ 13,000.