Expense or Asset?

Posted 17/06/2019

If you carry out your own bookkeeping, you will need to categorise the expenses into types and define whether they were a consumable expense or if they are a business asset. Sometimes this may be difficult to know, and guidelines can overlap. So how do you know if you’re inputting your purchases correctly?

An asset is expected to serve the business for over a year, ideally at least 3 years. Plant and machinery, like an expensive tool or a camera, would be purchased with the intention to last a couple of years provided they don’t break during this time and so would be suitable to be categorised as assets. Fixtures and Fittings would include office furniture provided the business has one, and items such as a desk or shelving unit can be put here. Laptops and computers are a clear item for IT equipment classification.

The value of the item must also be considered, and a cut-off point to be set as a guide. If a USB mouse for a computer was purchased for £30 then calling it an expense would be as suitable as capitalising the item, even though the mouse could serve its purpose for a few years. For a small business, £100 would be suitable to be used as a guide for whether an item should be capitalised.

Some expenses may be easily identified as assets, but there may be uncertainty to what type of asset they should be coded to. Mobile phone devices are more like minicomputers these days with their email and internet applications. A phone itself would fit into plant and machinery, while a computer is IT equipment. There is no right or wrong answer here, and either would be acceptable.

Ultimately, this comes down to logic and the individual entering the information. The mouse in the above example can be put down as an asset or an expense and neither way would be correct. Consistency is important; if another mouse for £30 was purchased two years later it would be appropriate to put this in the same category as the previous mouse. If you put a mobile phone down to plant and machinery, then all future mobile phones should be placed in the same category.
When you come across these types of transactions you must be sure how they should be categorised by your business.

Tags: expenses, assets, bookkeeping

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