When that asset sold and generated revenue, we moved the cost of the asset to cost of goods sold (COGS) and recorded the cost against the revenue in one of the most perfect examples of matching we’ve seen so far. We call that a product cost, as opposed to a period cost. Rent, insurance, and wages are examples of period costs that we match to revenues by posting them to the income statement accounts in the same period as the revenue, using time as our method of matching. All intangible assets are nonphysical, but not all nonphysical assets are intangibles. For example, accounts receivable and prepaid expenses are nonphysical, yet classified as current assets rather than intangible assets. Intangible assets are generally both nonphysical and noncurrent; they appear in a separate long-term section of the balance sheet entitled “Intangible assets”.

  1. If the equipment or machinery in question is a necessary part of your business operation, it’s a plant asset.
  2. Let’s take another look at The Home Depot, Inc. balance sheet as of February 2, 2020.
  3. Tangible assets have physical characteristics that we can see and touch; they include plant assets such as buildings and furniture, and natural resources such as gas and oil.
  4. In this section, we will look at the accounting treatment for plant assets, natural resources and intangible assets.

If you picture a business as a process that creates wealth for the owners, PP&E are the physical machine. Left by themselves, PP&E just sit there, but put into action by people with energy and purpose, they become a money-making machine. The most efficient use of these resources maximize profit. Let’s take another look at The Home Depot, Inc. balance sheet as of February 2, 2020.

Some final thoughts on plant assets

The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent https://cryptolisting.org/ is separate from The Motley Fool editorial content and is created by a different analyst team. Mary Girsch-Bock is the expert on accounting software and payroll software for The Ascent. As for buildings, per IRS rules, non-residential buildings can be depreciated over 39 years using the Modified Accelerated Cost Recovery System (MACRS) method of depreciation.

What you will learn to do: Identify PP&E

In this section, we will look at the accounting treatment for plant assets, natural resources and intangible assets. Plant assets, also known as fixed assets, are any asset directly involved in revenue generation with a useful life greater than one year. Named during the industrial revolution, plant assets are no longer plant assets refer to nonphysical assets that are used in the operations of a business. limited to factory or manufacturing equipment but also include any asset used in revenue production. It’s impossible to manufacture products without equipment and machinery, or a building to house them. If the equipment or machinery in question is a necessary part of your business operation, it’s a plant asset.

Unit 11: Plant Assets and Intangible Assets

Plant assets are long-lived assets because they are expected to last for more than one year. Long-lived assets consist of tangible assets and intangible assets. Tangible assets have physical characteristics that we can see and touch; they include plant assets such as buildings and furniture, and natural resources such as gas and oil. Intangible assets have no physical characteristics that we can see and touch but represent exclusive privileges and rights to their owners. What these assets all have in common, that also differentiates them from current assets, is that they are not going to turn into cash any time soon and their connection to revenue is indirect. With inventory, we saw a direct match between the cost of the product and the sales revenue.

Financial Accounting

Plant assets, like all assets, are reported on your balance sheet, where they are typically displayed separately from current assets and are usually listed as fixed assets, long-term assets or property, and plant and equipment (PP&E) assets. As we continue to walk our way down the balance sheet, we come to noncurrent assets, the first and most significant of which is PP&E. At almost $23 billion, PP&E composes almost half of the total assets of $51 billion. Assets are anything of value that your business owns. Even the smallest business has assets, which can include everything from cash in the bank, to the computer you’re working on, to the building where you manufacture piggy banks. The best way to manage your assets is to use an accounting software application that simplifies the entire asset management process from the initial acquisition to asset disposal.

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