Property, plant, and equipment

Accountants define property, plant, and equipment (“PP&E”) as tangible assets used for long-term use to earn profits. They are also known as fixed assets. Examples of PP&E include:

  • Land
  • Buildings
  • Equipment
  • Cars and trucks

PP&E are tangible assets, in the sense that they have physical substance. They are long-term, intended to be used for at least a year (in most cases). And they are used to earn profits. If PP&E is not in use to earn profits, then it might be held for sale (a separate category).

Depreciation

PP&E should be depreciated over its useful life.

Impairments

You should test PP&E for impairments at least once a year, or if something has happened that indicates that it might have lost value.

Journal entries

To record the purchase of PP&E with cash, debit the account PP&E and credit cash for the cost of the property, plant, and equipment. Include all costs of getting the PP&E ready for use, including shipping and installation. If you issue a note to purchase the PP&E, then debit PP&E and credit Notes payable.

To sell PP&E, first depreciate the asset up until the date that you stopped using the asset by debiting Depreciation expense and crediting Accumulated depreciation. Then debit cash for the proceeds received. Credit PP&E for the original cost. Debit Accumulated depreciation for the total depreciation recorded. If the difference is a debit, then debit Loss from disposal of PP&E. If the difference is a credit, then credit Gain from disposal of PP&E.

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