How to Expense Building & Land

Buildings and land are fixed assets.

Expensing buildings and land is not as simple as expensing other items. This is due to the recognition of the expense over a period of time for fixed assets. Therefore, the accountant will expense the buildings and land through the depreciation expense. When purchasing buildings or land, you first report them as an asset and a liability or a decrease in assets to pay for them. The buildings and land then decrease in value on the books as the company depreciates the asset.

Instructions

1. Record the purchase of the building and land by debiting "Building" and "Land" then crediting either a "Cash" or "Notes Payable" account.

2. Calculate the depreciation of the buildings and the land. The simplest depreciation calculation is the straight line method where you subtract the residual value of the asset from the cost of the asset, then divide the difference by the estimated useful life of the asset. The asset's residual value is the amount the company thinks the asset is worth at the end of its useful life.

3. Record the depreciation to expense the buildings and land by debiting "Depreciation Expense" and crediting "Accumulated Depreciation." The "Depreciation Expense" goes on the income statement as a reduction to net income.

References

• Accounting Coach: Depreciation
• Investopedia: Fixed Asset Definition