An equipment financial statement is a report that details how your business uses certain pieces of equipment. The equipment is typically a long-term physical asset that you purchase or lease. Its placement on the financial statement depends on how the equipment was acquired, whether you bought it outright or leased it, and the lease arrangement. If the equipment was bought outright, the equipment should be listed on the balance sheet, while the related expenses should be reported on the income statement.
An equipment financial statement is useful to investors in analyzing your business’s financial position. It can help you determine how much your equipment costs. The value is usually based on the cost of the asset itself, although it can be based on the value of the property that gave rise to it. A financial statement will show both the cost of the asset and the cost of depreciation over its life.
The accounting for property and equipment is similar to that of prepaid expenses. In this form of accounting, the cost is directly reduced as time goes on. For example, if you bought a building a year ago, you’ll report its full cost on your balance sheet, whereas if you sell it, you’ll report the partial cost.
The equipment financial statement also reflects depreciation, which is an expense for a business over its life. A company accounts for depreciation by allocating a percentage of the cost to the income statement in each period. This deduction accounts for the wear and tear on the equipment and can be calculated using a number of methods, including the straight-line method and units-of-production method.
To properly depreciate tangible operating assets, you must first determine their residual value. A company can do this by using the straight-line method, where the expected residual value is subtracted from the cost. Then the depreciable base is allocated evenly over the expected life of the asset. The straight-line method is the most common method and is used by many reporting companies.
In addition to depreciation, you should also account for land improvements. The costs of sidewalks and parking lots are capitalized and depreciated over a period of years. The same applies to equipment. Whether your company is planning to sell the property or trade it, make sure you account for the costs associated with the new asset.
For this, you should know that you should use the straight-line method to allocate individual costs to expenses. Using this method, you can allocate costs to each account separately and then adjust them into the expense account. Using the straight-line method will allow you to track each expense and revenue separately. It will also allow you to use historical cost in determining the final depreciation amount.
The second method is the fair value test. This test measures how much cash an asset is expected to generate in its remaining life. This measure allows you to assess whether or not the asset is worth reporting. The owner will typically estimate the future cash flow from an asset, and compare this figure to the current book value. The lower figure is reported on the balance sheet. If the expected cash flow is greater than the present book value, then immediate recognition is warranted.
