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Is Equipment a Current Asset?

Is Equipment a Current Asset

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Is Equipment a Current Asset

No, equipment is not considered a current asset. Instead, it’s classified as a long-term asset or a non-current asset on a company’s balance sheet.

Current assets are assets that can be converted into cash or used to pay liabilities within one year. They include cash and cash equivalents, accounts receivable, inventory, and other short-term assets.

On the other hand, long-term assets or non-current assets are assets that cannot easily be converted into cash or are not expected to become cash within the span of one year. They include property, plant, and equipment (PP&E), long-term investments, intangible assets like patents or trademarks, and more.

Equipment falls under the category of property, plant, and equipment (PP&E), which also includes things like buildings, land, machinery, vehicles, furniture, and more. PP&E assets are tangible items that are used in the operation of a business and have a useful life of more than one year. They are subject to depreciation over their useful life (except land, which is not depreciated).

Remember that the classification of assets into current and non-current can depend on the nature of the business and the asset’s expected useful life. For example, a car rental company may consider its vehicles as current assets if it plans to sell or replace them within a year.

Example of: Is Equipment a Current Asset

Let’s look at a simplified example of a balance sheet to show where equipment would be classified:

XYZ
Company Balance Sheet as of December 31, 2023

ASSETS

Current Assets
Cash: $50,000
Accounts Receivable: $30,000
Inventory: $40,000
Prepaid Expenses: $5,000
Total Current Assets: $125,000

Non-Current Assets
Equipment: $200,000
Building: $350,000
Land: $250,000
Total Non-Current Assets: $800,000

Total Assets: $925,000

LIABILITIES AND OWNERS’ EQUITY

Current Liabilities
Accounts Payable: $25,000
Short-Term Loans: $30,000
Total Current Liabilities: $55,000

Non-Current Liabilities
Long-Term Loans: $300,000 Total
Non-Current Liabilities: $300,000

Total Liabilities: $355,000

Owners’ Equity
Capital Stock: $500,000
Retained Earnings: $70,000
Total Owners’ Equity: $570,000

Total Liabilities and Owners’ Equity: $925,000

In this example, you can see that the equipment is listed under non-current assets, along with other long-term assets like the building and land. These are assets that the company plans to use for more than one year to generate revenue, rather than converting them into cash within a year. They are essential for the company’s long-term operations and are not easily liquidated.

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