Accounting: Property, Plant, and Equipment
Long-lasting, physical assets used in business operations are known as Property, Plant, and Equipment. This is a common asset category on the classified balance sheet. Property, Plant, and Equipment may also be called operational assets, fixed assets, or plant assets. Things like buildings, vehicles, and office furniture are classified as Property, Plant, and Equipment.
The assets designated as Property, Plant and Equipment often are depreciated. Depreciation is the distribution of a plant asset's cost over the length of its useful life. Land is not depreciated, because it can maintain its value. Because depreciation links the expense and revenue associated with an asset, it is said to follow the matching principle. The matching principle ensures accuracy in accounting.
Property, Plant, and Equipment assets are recorded on the balance sheet at the price at which they were purchased. The amount paid for an asset is also known as its historical cost. Taxes are included in the historical cost of an asset.
Large assets are often purchased with a note from the bank. The purchase of a building with a note payable would be recorded with a debit to Building and credit to Notes Payable. Debiting an asset account to record the acquisition of an asset is also known as capitalizing the asset.
In accounting, land and land improvements are totally distinct assets. They are recorded separately when the land is acquired. and improved. The legal fees paid by the buyer, surveying fees, the cost of removing unwanted buildings, and overdue property taxes would all be included in the cost of land. Paving, signs, fencing, and lighting are considered land improvements, which are not included in the cost of land. Land improvements are subject to depreciation.