What is Equipment?

Equipment can include both office equipment (such as a copier) and production equipment. It is classified as a fixed asset if it provides value for an extended period of time, and its cost exceeds the owning firm’s capitalization threshold.

How to Classify Equipment

Equipment is not considered a current asset. Instead, it is classified as a long-term asset. The reason for this classification is that equipment is designated as part of the fixed assets category in the balance sheet, and this category is a long-term asset; that is, the usage period for a fixed asset extends for more than one year. This classification of equipment extends to all types of equipment, including office equipment and production machinery.

When equipment in the fixed asset category is expected to be sold off or otherwise disposed of within one year, its book value is still classified as a long-term asset; even in this situation, it is still not classified as a current asset.

When to Treat Equipment as an Expense

When the cost of equipment falls below the capitalization threshold of a business, the equipment is simply charged to expense in the period incurred. This means that the equipment never appears in the balance sheet at all - instead, it only appears in the income statement as an expense. It might be charged to expense as part of the cost of goods sold or administrative expense - it depends on the nature of the equipment.

When Equipment is Classified as Inventory

If a business routinely engages in the purchase and sale of equipment, these items are instead classified as inventory, which is a current asset. For example, a distributor of copiers may maintain a large number of copiers, all of which are classified as inventory, since they are expected to be sold in the ordinary course of business.