Question

Please describe how you would account for the following:

A company's fixed asset policy is that they capitalize purchases > $2,500.

1. A laptop costing $2,000 is purchased Oct 1 2020. What are the journal entries for Oct, Nov, and Dec 2020?

2. A copier costing $5,500 is purchased Oct 15 2020. What are the journal entries for Oct, Nov, and Dec 2020?

Answer 1

1) In the first Case the cost of laptop is expensed in profit and loss account in the month of October 2020 and then their will be no entries relating to this purchase in the month of November and December 2020.

So, the entry for Oct 2020 is

Date	Particulars	Debit	Credit
Oct 1 2020	Expense A/c	2000
	To Cash A/c		2000
	(Being laptop purchased)
Nov-20	No entry
Dec-20	No entry

2) In the second case Copier will be recorded as an asset and cost will be capitalised in the books of account in the month of October.Further, for November and December a depreciation entry with respect to Copier will be recorded in the books of accounts.

Date	Particulars	Debit	Credit
Oct 1 2020	Copier A/c	5500
	To Cash A/c		5500
	(Being laptop purchased)
Nov-20	Depreciation A/c
	To Copier A/c
	(Being Depreciation recorded)
Dec-20	Depreciation A/c
	To Copier A/c
	(Being Depreciation recorded)