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Is Equipment Considered an Asset?

Is Equipment Considered an Asset

Equipment can be an asset or a liability in your business accounting. Find out how to properly classify equipment on your balance sheet.

  • You may consider the equipment you need to run your business a liability or an asset.
  • Accounting staff should include equipment in a company’s balance sheet as a “noncurrent asset”, which is an asset that loses value after a fiscal period has ended.
  • The main noncurrent asset categories are tangible assets, intangibles assets and natural resources.
  • This article was written for business owners who purchase or sell equipment and need to accurately classify it for accounting purposes.– Your company may be focused on making money by selling products and services, but you might not consider the hardware that helps streamline this process. Equipment is not just an item that you have inside your company. Equipment is an asset that will provide long-term value, regardless of whether you’re starting a new company or expanding it.

How does equipment get classified in accounting? Is equipment an asset or liability, for example? We will help you to discern the difference, and answer any general questions.

Are assets or liabilities considered equipment?

Equipment can be both a liability or an asset. Equipment that is subject to a loan can be considered a liability.

Equipment can be an asset that helps you increase your sales. Equipment is not an asset that you have in your current portfolio, but it can help you increase sales. [Related to The Complete Equipment Leasing Guide For Businesses ]

What is the type of asset?

Equipment is a noncurrent asset, or fixed asset. Noncurrent assets are long-term investments that your company makes but that you don’t expect to convert into cash in the next accounting year.

Property, plant and equipment (PP&E) are generally considered fixed assets. Noncurrent assets may reduce cash flow but can signal investors that you care about your business and increase customers’ trust as you grow your company.

Which equipment is included in assets?

An asset can be equipment that is essential to your business or industry. These are some examples of equipment assets.

  • Copy machines
  • Postage meters
  • Computers
  • Telephones
  • Fax machines
  • Production line machinery
  • Tractors and farm combines
  • Lumber-cutting machinery
  • Wrecking balls
  • Drills with pneumatic pistons
  • Cranes
  • Robots
  • Scanners for medical purposes

How to maximize the value of your equipment

Your equipment is an asset that will last a lifetime, so it is important to properly manage it. Use the equipment only for the tasks it was designed to perform. Equipment should be viewed as an asset, not a tool. This will make it easier to invest the money and time necessary to maintain and upgrade it.

Regular inspections and audits of equipment can increase its efficiency and extend its life expectancy. You can avoid prolonged shutdowns that could negatively impact your profits by managing your long-term assets accurately. You can also protect the value of your assets if you decide later to upgrade or sell.

Current assets versus noncurrent assets

You can have both current assets and noncurrent assets in your business. The speed at which you intend to use the resource determines whether it is included on your balance sheet as either a current or noncurrent asset.

Current assets

All current assets will be sold within one year. Your company will use existing assets to pay bills or fund day-today expenses. These are some examples of current assets:

  • Inventory (finished goods).
  • Accounts Receivable (electricity and cell phone)
  • Checking accounts and cash
  • Foreign currency
  • Prepaid expenses
  • Marketable securities (certificates de deposit, high-yield savings account, money market accounts)
  • Liquid assets
  • Supplies (raw materials)

Here’s how to calculate current assets.

Current assets: Accounts receivable + Cash and Cash equivalents + Inventory + Marketable securities + Prepaid charges

Noncurrent assets

Noncurrent assets will lose value after at least one fiscal year. Companies invest in noncurrent assets over many years to avoid large losses during periods of growth. These are some examples of noncurrent assets that companies should consider:

  • Long-term investments
  • Vehicles
  • PP&E
  • Patents and trademarks
  • Goodwill ( intangible property).

Each column on an accounting spreadsheet has a different column for current and noncurrent assets. They are then added together and reconciled with liabilities and equities.

How does equipment appear on a balance?

Your equipment will be included in your balance sheet as noncurrent assets. It is not necessary to create a separate balance sheet for equipment.

This formula can help your company borrow money from investors and financial institutions.

Assets = Liabilities + Shareholders equity

It is essential to understand your company’s financial situation and to engage investors to help accelerate your business’s growth. It can be difficult to create an exact balance sheet by yourself. You should look into the best accounting program for your company if you are unable to hire an accountant in-house or contract. Our QuickBooks Online review includes FreshBooks review and Oracle NetSuite review.

What are other noncurrent assets you might have?

There are three major types of noncurrent assets: tangibles, intangibles and natural resources.

Tangible assets

Tangible assets can be company-owned property, or physical goods that are essential to the business’ operation. The asset is valued at the original cost, minus any deduction. But tangible assets, such as land, may not be subject to depreciation since they are more likely to appreciate.

Intangible assets

Although intangible assets do not have a physical form, they can provide significant company value. These assets can be classified as either definite (such trademarks), or indefinite (such brand recognition).

Natural resources

Because of the loss that natural resources can experience during consumption, they are often called “wasting assets”. These resources include fossil fuels and minerals, oil, timber, and wood.

Here’s the formula for natural resources balance sheet:

Acquisition costs + Exploration and Development costs – Accumulated Depletion = Natural Resources assets

No matter if your business has the noncurrent or current assets mentioned above, ensure that your accounting personnel properly record them on your balance sheet.

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