Definition
The financial accounting term cost of equipment refers to the asset valuation method that applies to equipment appearing on a company's balance sheet. The cost of equipment would include all expenses associated with the acquisition of the equipment as well as those needed to ready it for use by the company.
Explanation
As the name implies, this asset would be part of the company's property, plant, and equipment. The cost would include not just the purchase price of the equipment, but all of the costs necessary to ready it to be placed into service.
Typically, these costs can include item such as sales tax, freight and handling charges, insurance while in transit, the cost of preparing the site to receive the equipment, installation and assembly, and testing to ensure it is operating as expected. The term equipment can apply to fixed assets such as machinery, furniture, fixtures, computer systems, printers, office equipment and similar items. Equipment is carried on the balance sheet at original / historical cost, and is reduced by the contra asset accumulated depreciation to arrive at net book value. The sale of an asset can result in a gain or loss, which is calculated as the net book value minus the sale price. Gains or loss on the sale of equipment are recorded on the income statement.
Related Terms
Also known as a statement of financial position, the balance sheet is used to show the financial health of a company at a particular point in time. The balance sheet consists of assets, liabilities, and owner's equity in the company. It is one of the four key financial statements issued by public companies.
Moneyzine EditorJanuary 8th, 2024- The financial accounting term property, plant, and equipment is used to describe assets of a long lasting nature, which are used in the normal operation of the company. The most common types of property, plant, and equipment are land, buildings, and machinery.Moneyzine EditorSeptember 21st, 2023
The financial accounting term cost of buildings refers to the asset valuation method that applies to buildings appearing on a company's balance sheet. The cost of buildings would include all expenses associated with the acquisition or construction of the building to ready it for use by the company.Moneyzine EditorSeptember 19th, 2023
The financial accounting term cost of land refers to the asset valuation method that applies to land appearing on a company's balance sheet. The cost of land would include all expenses associated with the acquisition of the property, as well as those needed to ready it for use by the company.Moneyzine EditorJanuary 12th, 2024- The financial accounting term self-constructed assets refer to those built by the company and appearing on its balance sheet. The cost of self-constructed assets would include direct costs such as materials and labor associated with its construction. Companies can optionally allocate a portion of indirect costs to the asset too.Moneyzine EditorSeptember 21st, 2023
The financial accounting term accumulated depreciation is used to describe a contra asset account that summarizes the total of all the depreciation of an asset that has occurred at a certain point in time.Moneyzine EditorJanuary 4th, 2024
The financial accounting term interest costs during construction refers to the financing charges incurred during the creation or acquisition of assets such as property, plant, and equipment. Companies can capitalize interest costs if they are material, otherwise they should be expensed.Moneyzine EditorJanuary 22nd, 2024- The financial accounting term service life is used to describe the period of time over which an asset can be expected to perform its intended use. Service life is typically limited by two factors: physical wear and obsolescence.Moneyzine EditorSeptember 21st, 2023
The term casualty insurance refers to an agreement whereby in exchange for the payment of a premium, an insurance company assumes some, or all, of the risk associated with the loss of assets due to fire, storms, theft and accidents.Moneyzine EditorJanuary 10th, 2024
