uberathlete Posted 9 May 2013 , 8:59pm
post #1 of

Hi everyone.

 

I was just wondering if baking tools like spatulas, cake pans, rolling pins, and other tools/implements used daily, are assets or expenses? Would the way they are treated or categorized be different if you have a large amount of them? Any insight would be appreciated.

9 replies
vgcea Posted 9 May 2013 , 10:57pm
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ALet's see if I still have my accounting right. They're both. Here's how: Your equipment are considered assets. As you use them, they depreciate over their useful life. That depreciation becomes an expense (accumulated depreciation expense). It is how much it has cost you to use that equipment to make your cakes. Supplies like foil paper are also assets. You use them up in the process of making your cakes. As they're used up, they also become an expense (supplies expense) that is how much it cost you to use them up in making your cakes. So basically, assets as they are used up become expenses. For tax purposes, large assets are typically depreciated over a number of years i.e. expensed out over a period of time. Smaller assets are usually not, they'd be expensed out during that accounting period.

I expect Jason to be here any minute. He'll fix whatever I got wrong.

DeliciousDesserts Posted 9 May 2013 , 11:53pm
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AHahahaha! Funny because its true!

Original message sent by vgcea

I expect Jason to be here any minute. He'll fix whatever I got wrong.

MimiFix Posted 10 May 2013 , 1:06am
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Such an interesting, academic question. Why have you asked?

uberathlete Posted 10 May 2013 , 1:23am
post #5 of
Quote:
Originally Posted by MimiFix 

Such an interesting, academic question. Why have you asked?

Well I'm in the process of redesigning our whole accounting system, so it's just something I'm looking at. I asked because while I do understand that such supplies become expenses as they are used but usually they are just expensed right away because their individual value isn't so big and it doesn't make much sense to depreciate them, they could also be sold. So they are also assets in that they could be sold. Also, the total value of all those small tools my be quite large. Now if they are sold, what would the journal entry be? Typically, it would be a debit to cash and credit to the asset (and an accompanying gain or loss on sale). But if they were expensed initially, what would the journal entry? Debit to cash but credit to what? I'm a bit confused in how that would be treated. Any accountants that can shed light on this?

vgcea Posted 10 May 2013 , 3:38am
post #6 of
Quote:
Originally Posted by DeliciousDesserts 

Hahahaha! Funny because its true!

Yep. Never fails icon_lol.gif Gotta love him.

jason_kraft Posted 10 May 2013 , 3:43am
post #7 of

AFor the items you mentioned it's probably easier to treat them as expenses instead of assets, so upon purchase you would credit cash (decreasing the cash asset account) and debit an expense account like Supplies. This is a shortcut for recording the asset and immediately depreciating it (credit cash and debit asset, then credit asset and debit depreciation expense). This is true even if the small items add up to a large amount in aggregate.

If you sold the items for any amount, your cost basis for the item is zero so you would recognize a net gain by debiting cash and crediting an income account like "Gain on disposal of assets". This income would be taxable.

For a single large capital asset (a commercial mixer, fixtures/tables, etc.) you would depreciate as usual based on the schedule for the asset.

uberathlete Posted 10 May 2013 , 3:46am
post #8 of
Quote:
Originally Posted by jason_kraft 

For the items you mentioned it's probably easier to treat them as expenses instead of assets, so upon purchase you would credit cash (decreasing the cash asset account) and debit an expense account like Supplies. This is a shortcut for recording the asset and immediately depreciating it (credit cash and debit asset, then credit asset and debit depreciation expense). This is true even if the small items add up to a large amount in aggregate.

If you sold the items for any amount, your cost basis for the item is zero so you would recognize a net gain by debiting cash and crediting an income account like "Gain on disposal of assets". This income would be taxable.

For a single large capital asset (a commercial mixer, fixtures/tables, etc.) you would depreciate as usual based on the schedule for the asset.

Great, my suspicions have been confirmed. Excellent response jason!

connie9003 Posted 10 May 2013 , 3:48am
post #9 of

OK here I am your accountant baker lol well im not a CPA but I have been doing accounting for over 20 yrs.

 

Large Mixers, ovens, etc are an asset which you and your account will decide if you expense it over time or all at once. Usually this is decided around tax time lol

 

Spatulas, knives, tips etc would be expenses and deducted at the time of purchase because they can break, be lost, etc

 

Pans are both asset and expense. You usually expense it when you buy it because you generally don't pay a lot at the time of purchase but for "Value of Business" they should be included in assets for Loan purposes or sale of business purposes.

 

Does any of this help ?

connie9003 Posted 10 May 2013 , 3:52am

lol Jason said it better. Im better with the program at my finger tips than I am at explaining it :)

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