Capital Asset Vs. Capital Equipment
Public officials support corporate capital asset programs to spur economic growth. Companies work in tandem with authorities to engineer long-term infrastructure programs, but corporate leadership ensures that firms don't pay too big a price for industrial expansion. Before they engage in capital equipment transactions, senior managers review corporate expansion options, liquidity levels and competitors' strategies.
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Capital Assets
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A capital asset is an economic resource that a company intends to use in its operations for more than a year. Resources with shorter periods of usage are current or short-term assets. A capital asset is a tangible, fixed or long-term resource. Examples include machinery, equipment, real estate and production processes. Capital assets generally have physical substance, unlike other corporate resources such as copyrights, trademark, patents, bonds and stocks.
Capital Equipment
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Pieces of capital equipment consist of machinery and industrial apparatus that a company will use for more than a year. Companies invest in equipment to expand their operations in the long term. In modern economies, a lack of corporate equipment and infrastructure investments is often a precursor to economic turbulence. Equipment investments include renovations and purchases of manufacturing plants and production machinery. To manage their equipment efficiently, companies often rely on specific tools, such as analytical or scientific software; project management, review and optimization software; and computer-aided design applications.
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Connection
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Capital assets are distinct from capital equipment, but both terms interrelate. Corporate accountants and logistics managers count equipment as capital assets when reviewing and reporting a company's operating data. Granted, corporate capital asset managers often don't exercise direct control over the manufacturing of goods. However, they monitor the use of tangible assets that serve in a firm's production mechanisms.
Accounting
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Companies abide by accounting norms and regulatory directives when recording capital asset and capital equipment transactions. Accounting compliance often draws on sound risk-management practices that enable firms to use fixed assets productively. To record the purchase of a capital asset, an accountant debits the "property, plant and equipment" account and credits the vendors-payable account. The same entry holds for capital equipment purchases. To record depreciation on capital assets or equipment, the accountant debits the depreciation expense and credits the accumulated depreciation account.
Financial Reporting
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Financial reporting procedures covering capital assets require fiscal acumen, analytical dexterity and a familiarity with depreciation rules. For companies with substantial tangible resources, management's goal is to evaluate asset efficiency on an ongoing basis. In the corporate setting, capital-asset accounting entries affect two financial reports: the balance sheet and the statement of income. Depreciation expense is an income statement item. Capital assets and the accumulated-depreciation account are balance sheet components.
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References
- Photo Credit heavy equipment image by Greg Pickens from Fotolia.com
