Contractor Purchase - Expense or Asset?

Hi all,

I am very new to accounting practices, and when I have questions I often turn to other professionals, internet forums (like here), or to Universal Construction to sort things out, generally with success.  I've tried all these and can't seem to find a straight answer.

We've purchased some items for our (new, small and family operated!) contracting company and I'm not sure of how to log them.  I have two invoice/receipts I'll use for example.  One has a brad nailer, batteries and charger, coming in at under $700.  The other is a generator for a rural new home project and oil for the generator, at roughly $1800.  I've gotten mixed answers on whether these items qualify as assets because of the cost, or as operating expenses because of the nature of the items.  Can anyone please advise?

  • 0

    Your mixed responses are reasonable as you are getting into a grey area. If you capitalize the expense, make it an asset, then you will amortize the expense over a number of years. If you expense the items, the full value is an expense in the current year. To decide which you will do depends on a number of issues: life expectancy of the equipment and value of the equipment are possibly the two most important considerations. The oil for the generator is definitely and expense. The generator is possibly considered large enough to capitalize. The brad nailer, batteries and charger are questionable. Many organizations will use $1,000 as the threshold before capitalizing but there are even more variables to consider here.

    You are best to discuss all of this sort of thing with the accountant who will be doing your tax filings at year end. The accountant is a wealth of knowledge that should be used when setting up a new company. Their assistance in setting up the financial records so the records are correct for your particular situation is very important. Yes, you can gain valuable information from forums and networks but the responses have to be considered as general and not specific to you.

  • 0 in reply to Alwyn

    Thank you for your reply.  I can surely see how the the method of filing could alter how it benefits the company on the other end.  I appreciate the feedback!