Accounting Small Tools and Equipment

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A full range of small tools and equipment expenses are always amusing. It is not magic, it is necessary work. We all need this accessory for our convenience in the household or workshop. But its purpose is to make life easier for us, which does not mean that its cost will be low. Therefore, virtually all people pay great attention to this important aspect.

Here, I have collected some basic tools and equipment, applicable to business settings and offices. We also need to understand how to run the expenses incured in aquisistion of these softwares. I bet you will learn a alot.

Tools, equipment and other assets

You can claim a deduction for some or all of the cost of tools, equipment and other assets you buy and use to help earn your employment income.

If you use the tools for both work and private purposes you can only claim for your work-related use of the item.

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Assets you can claim

You can claim a deduction for tools, equipment and other assets if you use them to perform your work duties. The type of deduction you can claim depends on the cost of the asset.

If the tool or equipment cost you $300 or less, you can claim a deduction for the full amount in the year you buy it, if:

  • you use it mainly for work purposes
  • it’s not part of a set that together cost more than $300.

You can claim a deduction for the cost over the life of the item (that is, decline in value), if the tool or equipment:

  • cost more than $300
  • is part of a set that together cost more than $300.

You can only claim a deduction for the work-related use of the item.

You can’t claim a deduction for tools and equipment that your employer or a third-party supplies for use.

You can use the myDeductions tool in the ATO app to record your expenses or upload a photo of receipts or invoices.

Work out your claim

Use our Depreciation and capital allowances tool to help you work out the deduction available from the depreciating asset.

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Examples of tools, equipment or assets

You can claim a deduction for some or all of the cost of tools, equipment, assets or products you use to help earn your income. For example:

  • Calculators
  • Computers and software
  • Desks, chairs and lamps
  • Filing cabinets and bookshelves
  • Hand tools, such as spanners, hammers and screwdrivers or power tools, such as grinders, sanders and hammer drills.
  • Protective items, equipment and products, such as hard hats, safety glasses, sunglasses, sunscreens and cosmetics containing sun protection
  • Professional libraries
  • Safety equipment
  • Technical instruments.
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You can also claim the cost of repairing and insuring your tools and equipment and any interest on money you borrowed to buy these items.

If you use items for both personal and work-related purposes you need to keep records, such as a diary to show the purpose of use of the item. So that, if requested, you can show how you work out the amount of personal and work-related use.

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Handbags, briefcases and satchels

You may be able to claim a deduction for a handbag, briefcase or satchel you buy to carry items you are required to use and carry for your work, such as laptops, tablets, work papers or diaries. The amount of the deduction will depend on the how much you use the bag for work purposes.

You can’t claim a deduction if you mainly use the bag for personal purposes, such as carrying your lunch and beauty and hygiene products. This is private use.

When you use the bag for both private and income producing purposes, you may need to apportion the deduction you claim based on the amount of time you use the bag for work and for private purposes.

Where you use the bag for work purposes and it costs:

  • less than $300, you can claim the deduction immediately
  • more than $300, you will generally work out any deduction using its decline in value over its effective life.

Are office supplies an asset or an expense?

Managing an office seems like a pretty straightforward job. But things can be confusing when you’re trying to classify regular office expenses properly. For example, let’s say Sara buys staplers, staples, paper for the copier, and a laptop computer for one of her employees. Sara would need to record the cost of the staplers, staples, and paper as an office supplies expense, while the laptop would be considered an asset.A bunch of notebooks, pens, scissors, and other office supplies.

Notebooks, pens, pencils, and markers are all considered consumable office supplies. Source: Function-4.com.

Introducing office expenses makes this process even more confusing. What makes an office expense different from office supplies? Is a calculator considered office supplies or office equipment? Let’s take a look at all three business expense categories and how to classify them properly.

  1. Office supplies: Office supplies are small purchases that are needed for you and your employees to be able to do their jobs. Office supplies expenses include items such as staples, paper, ink, pen and pencils, paper clips, binders, file folders, and markers. All of these items are 100% consumable, meaning that they’re purchased to be used. While they are an asset because they hold value, they are not recorded as an asset but are recorded as an expense. It’s important to keep office supplies separate from inventory expenses. Inventory is always considered an asset since it’s not consumable.
  2. Office expenses: Office expenses, like office supplies, are typically recorded as an expense rather than an asset. Office expenses are often intangible and include things such as janitorial services, software subscriptions, office maintenance, and even website maintenance.
  3. Office equipment: Office equipment, unlike both office expenses and office supplies, is usually recorded as an asset and expensed over an extended period rather than expensed immediately. Office equipment includes desktop and laptop computers, other electronic devices, office machinery such as a printer or copier, and furniture and fixtures used to furnish your office. While many businesses use a dollar amount as a threshold for classifying these purchases as equipment, the IRS made a change in 2016 that allows business owners to take an immediate deduction for the entire cost of any business asset that is less than $2,500, although you still have the option to classify these expenses as a long-term asset.
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If you purchase office supplies in bulk, you can classify them as an asset and expense them as they’re used. But, in most cases, offices buy enough supplies to last them for a few weeks or a month, so classifying them as an asset is not necessary.


How to classify office supplies, office expenses, and office equipment on financial statements

When classifying supplies, you’ll need to consider the materiality of the item purchased. In other words, if the item does not have a large impact on your financial statements, you can choose to simply expense it. The materiality principle states that if an expense represents more than 5% of your total assets, it should be recorded as an asset rather than an expense.

The easiest way to classify office supplies, expenses, and equipment is to look at each purchase separately and decide how it should be classified.

For example, Tim’s company made the following purchases in October 2020:

  • A box of 12 pens for $5.99
  • Three reams of paper for $15.95
  • Two boxes of staples for $6.50
  • A box of file folders for $4.25
  • A subscription for a new accounting software application, which costs $25 monthly
  • A cleaning team to deep clean the office for $150
  • A new color laser printer for $1,095
  • A new copier for $3,000

Now let’s classify each expense in the proper category.

Office supplies

Classifying office supplies is easy. Looking at the above transactions, the following would be considered office supplies:

  • Pens for $5.99
  • Paper for $15.95
  • Staples for $6.50
  • File folders for $4.25

The total of these purchases is $32.69 and would be recorded in your accounting software or manually in your general ledger like this:

DATEACCOUNTDEBITCREDIT
10-31-2020Office Supplies$32.69
10-31-2020Cash$32.69

If these supplies were purchased on account, you’d have to first record the purchases in accounts payable.

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DATEACCOUNTDEBITCREDIT
10-31-2020Office Supplies$32.69
10-31-2020Accounts Payable$32.69

You would then adjust your payables account when you pay the bill.

DATEACCOUNTDEBITCREDIT
11-30-2020Accounts Payable$32.69
11-30-2020Cash$32.69

Office expenses

Tim’s transactions that need to be classified as office expenses include the following:

  • Software subscription for $25
  • Deep cleaning the office for $150

Both of these expenses were paid immediately and did not have to be entered in accounts payable, so they would be recorded as follows:

DATEACCOUNTDEBITCREDIT
10-31-2020Office Expenses$175
10-31-2020Cash$175

Office equipment

Tim made two office equipment purchases.

  1. Color laser printer for $1,095
  2. A copier for $3,000

Tim can choose to record both of these as assets, or he can choose to expense the printer immediately since it’s less than $2,500 and only record the copier as an asset. He chooses to expense the printer. Here is the journal entry that needs to be made to record the printer purchase.

DATEACCOUNTDEBITCREDIT
10-31-2020Office Supplies$1,095
10-31-2020Cash$1,095

However, Tim still needs to record the purchase of the copier, which is a fixed asset.

DATEACCOUNTDEBITCREDIT
10-31-2020Fixed Assets — Copier$3,000
10-31-2020Cash$3,000

Since the copier is being depreciated, Tim will need to record the depreciation expense as well. Tim determines that the salvage value of the copier will be $300, and it will be depreciated over three years using the straight-line method.

($3,000 – $300) ÷ 3 = $900 yearly depreciation

$900 ÷ 12 = $75 per month depreciation expense

DATEACCOUNTDEBITCREDIT
10-31-2020Depreciation Expense$75
10-31-2020Accumulated Depreciation$75

When recording a purchase as an asset, be sure to record both the purchase and the depreciation expense.

Conclusion

There are numerous small tools and equipment but there are some tools which can’t be separated with manufacturing industry.

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