Ask Me Help Desk - What is the journal entry for the purchase of an asset

Quote:

purchased a skid loader on a note. Should the entry look like this?
Skid Loader 12,000 (Fixed Asset Account)
Current Portion of Notes Payable 4,000 (paid this year) (Current Liability)
Long Term Portion of Notes Payable 8,000 (Other Liability)
Then depreciation would be booked as:
Depreciation Expense Skid Loader XX
Accumulated Depreciation Skid Loader XX

Two comments. One: you said "paid this year" past tense as though it was already paid. If so, it wouldn't be in this entry.

Second, the "current portion" can change over time and therefore we do not tend to put the currently current portion in with the current liabilities. If the note itself is long-term, we stick it into long-term and then at the end of the year determine how much total should be in the current and move that amount there. You could just put the whole thing in long-term, then when it gets paid, simply take it out with the payment. Granted, you can do what you did, but at year-end, you're still going to have to determine how much as of that date is due within one year and put it in current (Not to mention that if I did it, I'd have that adjustment reversed at the beginning of the next year to throw it back into long-term, so that I can just determine a new amount at the end of the next year and not mess with all that hassle in the middle. I think what you're doing is more work and hassle in the long-run, but it's up to you.)

Quote:

Also, can anyone tell me what the current 'threshold' is for expensing an asset vs. setting it up and depreciating it?

There isn't one. Depends on the size of the company, perhaps even type of company, risk factors (which can change).. blah blah blah and blah. It essentially comes down to materiality. In English, materiality is basically something that, if you did it differently (i.e. incorrectly) would affect the decisions of the users of the statements. The concept in and of itself isn't difficult (if you put $10 in the wrong account, you think anyone would care? What about $10,000?), but applying it can be difficult, and you have to think about who the users might be and what info they might want. It's actually more of an auditing question. But it also involves cost-benefit -- i.e. perhaps you would like to capitize everything over $100 - well, you're allowed, but is it worth the time? Only you can answer that.

I've worked for mostly pretty small companies and I generally capitalized anything over $500, or sometimes as low as $100 -- or maybe if it was added into a category of stuff we already had. (For instance, I might lump a $50 adding machine in with the other office equipment.) If I could see your books and knew something about your company, it wouldn't be too difficult for me to make that decision, but without knowing anything, can't tell you.

If you don't need audited, I'd say decide for yourself as long as you can be reasonable about it. If you do need audited, I'd actually suggest contacting an accountant who can know something about your company. Or just go smaller - smaller never hurts other than from a cost-benefit point of view.