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The MajorDifference Between Tools and Equipment in Accounting

The best tools are the ones that will help you do your job exceptionally well. Whether it’s a Post-It note or a high-tech calculator, if it helps you accomplish your goals, then it’s worth having. Accounting is no different. Let’s take a look at some of the differences between tools and equipment for accounting professionals. The purpose of this post is to define what tools and equipment are in the accounting industry, in order to dispel the confusion of many individuals working in small businesses. These professionals do not go into a business school knowing the difference between accounting tools and equipment. While a business school might teach them accounting standards and how to best use them, they are unlikely to provide this type of instruction.

In accounting, there are endless items that can be considered as either equipment or tools. It is easy to make a mistake when recording transactions for this type of asset. In order to avoid making a mistake, it’s important for you to understand the distinction between equipment and tools.

What is the difference between Tools and Equipment?

Tools and equipment are two words that are often used synonymously, mainly due to the similarities of their meanings. Because of this factor, they can be used interchangeably in most instances. However, in certain cases, this may not be so. Tools are commonly defined as anything that you can append to another object in order to increase its productivity or efficiency. To me, this definition speaks of the degree or magnitude to which an object increases your output. Equipment, on the other hand, is commonly defined as anything that can be applied to benefit a specific undertaking. This definition speaks of the purpose or function of an object. But both tools and equipment are useful and practical in their respective ways. They each help us tackle different problems in our lives and make different tasks easier to perform, whether it is a nail-puller on a hammer or a wrench on a nut and bolt set.

• A tool can be any item that is used to achieve a goal. Equipment usually denotes a set of tools that are used to achieve a specific objective.

• A tool can be non-mechanical as well. However, when one says equipment, there is a certain mechanical aspect to it that cannot be ignored.

• The usage of tools among human beings runs back to millions of years. However, the use of equipment is more of a recent development.

• Tools are often seen to be used by animals as well. Equipment is only used by human beings.

• Tools are usually multipurpose. Equipment is designed for a specific task.

What is a Tool?

Any physical item that is used to achieve a goal but is not consumed during this process can be defined as a tool. Informally speaking, it can also be used to describe a specific procedure with a specific purpose as well. The use of tools by human beings dates back million years. However, humans are not the only creatures known to employ tools in their day to day life.

A tool is a device that you use to do something. A tool can be a physical object, like a hammer or a saw, or it can be an idea, like the concept of gravity.

Tools are used for a wide variety of purposes. They’re used to build houses and create food, but they’re also used for things like cleaning your teeth or doing homework. The term “tool” has also been adopted by computer programmers and website designers as a way to describe software programs that help them do their jobs.

Tools are often also referred to as machine, apparatus, implements, instruments or utensils. The knowledge of obtaining, constructing and using tools is known as technology. Anthropologists view the usage of tools as an important step in the evolution of the mankind. It is said that after humans evolved an opposable thumb that is useful for holding tools, the intelligence of humans drastically increased as well.
Tools can perform a variety of functions such as cutting and chopping, moving, shaping, fastening, guiding, enacting chemical changes, fastening, information and data manipulation, etc. There can be specific tools designated for specific purposes whereas most tools can serve a combination of uses.

What is Equipment?

The idea of equipment represents all sorts of machinery, functional devices or accessories which serve an individual, household or a community purpose. Usually, a set of tools that are designated for a specific task is known as equipment. This could be a small set of functional items in a finished product.

Equipment is a type of asset that you can use for your business. It’s what you use to run your business, like office equipment and machinery.

You can depreciate equipment over its useful life, which means you deduct the cost over time. This reduces your taxable income, saving you money on taxes.

When you buy equipment for your business, you can deduct the cost from your gross income (the total amount of money before any deductions). You do this with a Section 179 deduction or by depreciating it over several years.

For example, equipment of a car may be alternators, absorbs, optical, electronic boxes,etc. Equipment of a house may be appliances while equipment may also include all sorts of devices needed for a specific task.

What is the difference between equipment and supplies? That’s a question many business owners ask themselves. In essence, supplies are a current asset that is usually used up within the year they are purchased. Supplies can include a number of things that are used in a business, including such items as:

  • Ink
  • Paper
  • Pens
  • Staples

Most of the time, supplies will be multiple small-ticket items, but when they are all added up, they can account for a decent amount of money throughout the year. Since most supplies will be utilized within a year of purchase, there are termed as a current asset that can be expensed in the year they are purchased. Supplies are considered to have a finite life, which means that once they are used, their purpose has been exhausted.

If the supplies are used for the manufacturing or sale of your product, such as shipping or packaging supplies, they will often be handled differently around tax time. Other items that can be considered supplies used for the production or manufacture of products include:

  • Chemicals used for manufacturing
  • Condiments and food supplies for a restaurant
  • Tape and boxes for packing

When supplies are used for the production or shipping of products, they are termed cost of goods when it comes to bookkeeping. These supplies will need to be inventoried at the beginning of the year so they can be calculated in the cost of goods section of your business’s financials. In the manufacturing world, sometimes the terms supplies and materials are used interchangeably. Supplies often refers to nonmanufacturing items and materials are those that will be used for the production of items.

Business Equipment

Any item that costs over $200 or $300 is often considered as equipment by default. Equipment is classified as a long-term asset and usually refers to items that will last and be used longer than a year. Equipment in a business is often referred to as tangible property.

Some businesses are better suited to using a specific type of equipment than others. If your business is looking to expand, you may want to consider purchasing new equipment. Some of the most common types of business equipment include:

• Office Equipment: This includes computers and printers, which are essential for any business that runs on computer systems.

• Industrial Equipment: This includes machinery used in manufacturing processes and production lines.

• Commercial Kitchen Equipment: This includes food preparation equipment such as refrigerators and ovens, as well as dining tables and chairs for customers who visit often enough to warrant their own set-ups at your restaurant or cafe.

Equipment covers a range of items and includes such things like:

  • Computers
  • Printers
  • Office furniture
  • Company vehicles

Because business equipment is utilized over a longer period of time, it often depreciates. Depreciation is taken as a business deduction. Sometimes, software that is expensive can be considered business equipment or can be termed as a depreciating expense.

If the software being utilized is subscription-based with a small monthly cost, it will often be recorded for accounting purposes as a utility or an expense. If the costs are higher, you can split them over a number of years. Equipment cannot include the land or buildings a business owns.

Office Expense Accounts

Office expense accounts will cover most of the businesses expenses that are necessary for a company’s functioning, even if it is considered intangible property.

Office Expense Accounts are a great way to keep track of all the little things that go into running your business. It’s easy to forget about things like printer ink and paper, but these expenses add up quickly.

Office Expense Accounts allow you to keep track of those expenses, so they don’t get lost in the shuffle. You can also use Office Expense Accounts to see where you’re spending money on supplies and other items, so you can make smart purchasing decisions in the future!

Some of these types of expenses are:

  • Accounting software programs
  • Postage
  • Cleaning and janitorial services
  • Utility bills

When you create accounts for your business financials, you will want to make sure to separate office supplies from other expenses.

Equipment and Supplies for Business Use

When recording equipment and supplies on your business financials, it is always important to record items that are only used for business and not for personal use. For example, when buying equipment for your business — such as a computer — it must be used only for business and not for personal use. Even though it may not seem important to make this distinction, it becomes vital in the event you are audited by the IRS. You will be required to prove it is fully a business expense.

If you use business equipment for personal use, you can deduct a portion of the expense you can prove was used for business. Whenever you purchase business supplies or equipment, it is important to use a company bank account or credit card for recording purposes.

Always Be Honest

No matter what you do when recording business supplies and equipment, it is vital to always be honest. If you are audited and the deductions for your supplies or expenses seem to be inconsistent or unrealistic, you may be flagged by the IRS. The IRS notes that there is over $30 billion that goes in unpaid taxes due to an overstatement of such things as:

  • Exemptions
  • Adjustments
  • Credits

If you need help with determining the difference between equipment and supplies, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.


Tools and equipment are two types of assets that play an important role in the financial records of a company. The main difference between tools and equipment as assets is that the former is intended as a consumption item, whereas the latter is viewed as a long-term investment. The concept can be understood by better understanding the characteristics both tools and equipment have. The balance sheet of a business organization comprises assets, liabilities, capital, revenue, and expenses. All these concepts are helpful in understanding the nature of assets. So, in terms of our article, we hope that we have better answered the question of what is accounting equipment. Using some equipment to be more efficient in your accounting business will hopefully improve your bottom line while also giving you more time to focus on other aspects of your business. We wish you luck in your endeavors and shudder to think how many more accounting articles we will write in the future. Oh, the joys of being an accountant!

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