What expense category is Equipment?

Equipment typically falls under the asset category in accounting. This is because equipment is a tangible, long-term investment that benefits a business for more than one year. However, the equipment cost isn't expensed immediately in the year of purchase. Instead, it's gradually deducted over time through depreciation, reflecting the equipment's decreasing value as it's used.

Equipment in Accounting

Equipment is classified as a fixed asset in accounting. Fixed assets are long-term investments used for business operations and not intended for resale. This classification distinguishes equipment from short-term assets like supplies or inventory.

Is Equipment an Expense?

Equipment is not considered a direct expense in the year of purchase. Instead, it's capitalized as an asset on the balance sheet, and its cost is recovered over time through depreciation.

Can I Find Equipment on the Income Statement?

No, the equipment itself isn't directly listed on the income statement. However, the depreciation expense associated with the equipment is recorded on the income statement each year, reducing the business's taxable income.

Is Equipment Listed on the Balance Sheet?

Yes, equipment is listed as a fixed asset on the balance sheet. Its value is initially recorded at its purchase price and then reduced each year by the amount of depreciation expense.

What Kinds of Equipment Fall Under Assets?

A wide range of equipment can be classified as assets, depending on their use and lifespan within the business. Here are some common categories and examples:

• Machinery: This includes heavy machinery used in manufacturing, construction, or industrial processes, such as assembly line equipment, industrial robots, construction cranes, and farm equipment.
• Vehicles: Vehicles used for business purposes, such as company cars, delivery trucks, forklifts, and tractors.
• Computers and Electronics: This includes a variety of electronic equipment used for business operations, like computers, laptops, printers, scanners, servers, and telecommunication equipment.
• Office Equipment: General office equipment not directly related to computing, such as photocopiers. fax machines, telephone systems, and security systems.
• Tools: Tools used in various trades and professions, such as power tools, hand tools, medical instruments, and testing equipment.

Some Important Considerations

• Lifespan: The equipment's expected useful life plays a role in its classification as an asset. Items with a lifespan of one year or less are typically expensed directly, while those with a longer lifespan are capitalized and depreciated.
• De Minimis Safe Harbor: The IRS allows businesses to expense low-cost items under the de minimis safe harbor election, even if they technically have a useful life of more than one year. This threshold is up to $5,000 per item or invoice for businesses with an applicable financial statement and $2,500 for those without.
• Uniform Capitalization Rules: Certain businesses involved in production or resale activities may be subject to uniform capitalization rules, which require capitalizing certain costs associated with producing or acquiring inventory.
• Specific Industry Rules: Some industries have specific rules for classifying and depreciating equipment. For example, the IRS has special rules for film and television production costs, as well as for equipment used in farming or oil and gas extraction.

How Fyle Can Help

Fyle is an AI-powered expense management platform that can help businesses accurately categorize and track their equipment expenses. Fyle's AI can automatically extract data from receipts and invoices, ensuring accurate record-keeping and compliance with IRS regulations. This saves businesses time and reduces the risk of errors, making tax preparation easier and more efficient.