In a list of economic events I was presented - one of them said "Moved Rick's home office equipment and furniture to the warehouse where it will be now used in the business. The original cost of these items was $25,000 but their current value is $15,000."

Using the cost principle, we are to record $25,000. But when I journalize it, debit for equipment but there's no place to credit it. It was not purchased AFTER the business started. Should I omit this just like I would omit the event that Rick paid $2,500 on property taxes for his home. Or am I to journalize it debit for equipment and credit for cash?

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Originally Posted by snowblack

In a list of economic events I was presented - one of them said "Moved Rick's home office equipment and furniture to the warehouse where it will be now used in the business. The original cost of these items was $25,000 but their current value is $15,000."

Using the cost principle, we are to record $25,000. But when I journalize it, debit for equipment but there's no place to credit it. It was not purchased AFTER the business started. Should I omit this just like I would omit the event that Rick paid $2,500 on property taxes for his home. Or am I to journalize it debit for equipment and credit for cash?

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Equipment:

Assuming the equipment was purchased by Rick some time ago and was used at home and now it is transferred to business for office use, the entry will be:

Debit Equipment 15,000
Credit Rick Capital 15,000

Remember the asset is recorded at the fair value given or received which ever is easily determinable. However, I prefer to put value within the $15,000 limit separately for Office Equipment and Furniture since the useful lives of the assets are different and the depreciation charge would also be different.

2. Property taxes

The property belongs to Rick and not the business, hence it is Rick's personal expense. If the amount has been paid from the business funds then debit Rocl's drawing account and credit cash. If the payment has been made from Rick's personal account, no entry is required.

As an added note about that "cost concept." If your company purchased something used from someone else, you would not record it at its original cost to the original owner -- that cost is irrelevant. You would record it at the cost to your company for purchasing it used.

Even though the company didn't "purchase" it, this is the same kind of concept. You don't have a cost because the company didn't buy it, but you also would never record it at the original owner's original cost because the cost concept applies to the new owner, not the original owner. But, since the company doesn't have an actual cost, then you use fair value.

Does that help clear up that "cost" thing?