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The Copier Guy

Understanding Office Equipment In Accounting & Tax


Office Equipment Accounting

In this article, we will be extensively discussing office equipment (i.e. Copier Machine) in accounting, the difference between office supplies and office equipment, and what the essential types of office equipment are.

What Is Office Equipment In Accounting?

In layman’s terms, office equipment can simply be defined as the tools, machines, and furniture required to carry out the day-to-day tasks in an office.

However, in accounting, office equipment takes on a more specific definition. Office equipment in accounting refers to any long-term asset that is used to carry out administrative or office-related tasks.

What Is Office Equipment In Balance Sheet?

A balance sheet displays the company’s total assets and how the assets are financed.

To fully grasp what classification office equipment falls under in a balance sheet, we must first understand the meaning of the term fixed asset.

A fixed asset can be defined as long-term tangible assets owned by a firm. The firm uses it to generate income and it is not likely to be sold within 12 months or turned rapidly into cash. Some fixed assets include land, buildings, and equipment.

Now that we understand what a fixed asset is, note that a balance sheet typically classifies office equipment as a long-term fixed asset that depreciates following its useful life.

Some of the most common examples of office equipment are computers, furniture, copiers, fax machines, printers, etc.

Is Office Equipment An Expense Or Asset?

Office equipment can be defined as a fixed asset account where the acquisition costs of office equipment are to be stored. It could be categorized into fixed assets, intangible assets, or other assets.

It is also categorized as a long-term asset account because the asset costs tracked or recorded in it is anticipated to be kept for at least 12 months or more than one year. The purchases made here are recognized as long-term investments and are more than likely to devalue or depreciate throughout their lifespan.

So, to put it simply, office equipment is classified as either a fixed asset or a long-term asset with depreciating value. It is not to be confused with or mistaken for office equipment expense.

Meanwhile, office equipment expense is defined as the incurred cost of sustaining and operating office equipment. It is normally categorized under the sales, general and administrative classification of expenses in the income statement.

Difference Between Office Supplies And Office Equipment

There is usually a degree of uncertainty over the difference between office equipment and office supplies. The key distinction between the two is materiality.

Assets that can be consumed within a year and are less material are classified as office supplies. They are also acknowledged as an expense of business and when calculating net income are set off.

Office supplies are made up of items that you would usually use up while carrying out work-related tasks and replenish very frequently. Some examples of office supplies include staples, ink refills, uniforms, table accessories, pens, stationery, paper, etc.

Meanwhile, on the flip side, office equipment consists2 of material items that have a lifespan of at least a year. They also consist of long-term assets used in conducting office-related tasks and assets that meet a company’s capital threshold. A few examples of office equipment include fax machines, computers, printers, terminals, etc.

It is important to note that office supplies are usually grouped with office furniture and are therefore recorded differently from office equipment.

Essential Types Of Office Equipment

There is an endless list of items that can be considered and classified under office equipment, ranging from copiers to computers and fax machines. Keeping track of the various kinds of office equipment and deciding where they fall under can be a strenuous task.

On that note, we have split the various office equipment into 3 categories to make them easier to track while highlighting the most essential types of office equipment.

Computer Equipment

Some of the office equipment that falls under this category include desktop computers, portable computers such as laptops, notebooks, iPads, servers, computer mainframes, terminals that are connected with minicomputers, and mainframes.

Items like printers and copiers, projectors for presentations, digital cameras, laminate machines, document scanners, cables to connect the device to a computer as well as paper shredders for disposing of sensitive and confidential information all fall under this category.

Communications Equipment

This consists of devices that aid communication within the office, such as telephones, fax machines, dictation machines, answering machines, Bluetooth headsets, cellular devices or smartphones, and tape recorders.

Devices like video recording, televisions or display monitors, and computer projectors for presentations and meetings also belong to this group.

General Office Equipment

This is the final category and it is made up of everything else that does not fall under the earlier mentioned categories. This includes file cabinets for maintaining copies of documents, postage meters for processing outgoing mail, a label-maker for storage needs, whiteboards for meetings and illustrations, and more.

It is important to note that office equipment is not limited to the items mentioned in the list above. The list is just a guide that should not be followed too strictly because it exists to provide clarity.

Copier Rental In Accounting

Before we identify where a copier rental is classified in accounting, we need to first understand the difference between a rental and a lease.

There is very little difference between copier rental and leasing. They both typically include the maintenance cost of the machine. Certain companies often refer to “lease” or “leasing” as “long-term rental”.

The only identifiable major difference between rental and lease is that renting is for a short period, while leasing is for a long period. So renting is suitable for when you need a copier for an event.

In accounting a copier rental just like a copier lease is considered an expense to your firm but unlike a copier lease, it is not considered a liability because the payments are for a short period.

How To Expense A Copier Lease In Accounting

When you sign a lease for an office copier you have committed your business to make structured monthly payments throughout the lease. The aforementioned payments are a liability on your account because they are an expense that should be paid regularly.

Appropriate acknowledgement of the expense is important for precise bookkeeping and tax records. Despite the usual segregation of long-term and short-term liabilities, office equipment leases are usually categorized as notes payable.

Below are the steps to expense a copier lease in accounting:

Step 1

Firstly, ascertain the amount to be paid on the lease monthly.

Step 2

Next, post the balance of the lease to the “Notes Payable” account after deducting the present month’s payment.

Step 3

Debit the leftover amount of the lease, and the present month’s payment to the “Office Expenses” account.

Step 4

Then credit the office equipment account for the full amount of the lease.

Step 5

Finally, credit the “Notes Payable” account and debit the “Office Expense” account with the monthly payment.

Taxes On Office Equipment

There is often more than one way of levying taxes on office equipment. The levying of taxes on office equipment is dependent on the government taxation rules in the country where the company does business.

Office equipment can be taxed in the following 2 ways:

  • When office equipment is sold it can be treated as sales and as a result, the sales tax can be applied to the sale.
  • In certain instances, property tax can be applied to office equipment.

When depreciating or devaluing office equipment for tax reasons, certain rules and regulations are to be closely adhered to. The method used for depreciating or devaluing must go by the stipulated tax codes and rules of the Inland Revenue Office (LHDN).

Are Repairs To Office Equipment An Expense?

The repairs and maintenance of office equipment are considered an immediate expense, this is the case regardless of how large the cost of the repairs is. Any huge expenditure that is incurred to enhance office equipment, that expenditure would be entered as an asset and gradually devalued over the lifespan of the equipment.

Summary

In conclusion, office equipment in accounting is generally viewed as either a long-term asset or a fixed asset with a value that depreciates over time, and all costs spent on maintaining them are considered an expense in accounting.

Thus, you should take full advantage of the tax benefits whenever possible. If you are looking for a new or refurbished photocopier to get the tax benefits, The Copier Guy offers competitive photocopier rental packages for you, whether you are in KL or Selangor.

Contact us now to learn more about our packages!

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