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Where does the purchase of equipment show up on a profit and loss statement?

Author:
Harold Averkamp, CPA, MBA

Reporting the Purchase of Equipment

Assuming that the purchase of equipment is a long-term or noncurrent asset that will be used in a business, the purchase will not be reported on the profit and loss statement (income statement, statement of earnings). Rather, the equipment’s cost will be reported in the general ledger account Equipment, which is reported on the balance sheet under the classification Property, plant and equipment. The purchase will also be included in the company’s capital expenditures that are reported on the statement of cash flows in the section entitled cash flows from investing activities.

When the equipment is placed into service, the company will begin to report depreciation expense on the profit and loss statements during the years that the equipment is used.

Example of Equipment’s Cost on Income Statement

Let’s assume that a company buys equipment for $100,000 and it is expected to be used for 10 years with no salvage value at the end of its useful life. Using the straight-line method of depreciation, each year’s profit and loss statement will report depreciation expense of $10,000 for 10 years. Each year the account Accumulated Depreciation will be credited for the $10,000 of annual depreciation.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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