Delivery equipment is a general ledger account that records the cost of the vehicles and equipment a business uses to carry goods to its customers. Typical items include vans, trucks, trailers, motorcycles used by couriers, and equipment fitted to vehicles such as refrigeration units or lift gates. Because these assets are used over several years, they are classified as noncurrent assets within property, plant and equipment.
Delivery equipment is kept separate from other categories of fixed assets, such as office equipment or factory machinery, so that its cost and depreciation can be tracked and its expense reported correctly. The day-to-day costs of running deliveries, such as fuel and drivers' wages, do not go into this account; they are charged to delivery expense as incurred.
Delivery equipment in plain terms
When a bakery buys a van to take bread to cafés, the van is not used up in one month the way flour is. It will do the job for years. So instead of counting the whole price as a cost straight away, the bakery records the van as something it owns and spreads its cost over the years it expects to use it.
The fuel, parking and tolls are different. They are used up as the van drives, so they are counted as costs each month. Keeping these two kinds of spending apart gives a truer picture of how much each year's deliveries really cost.
What is included in cost
Under the cost principle, delivery equipment is recorded at all costs needed to acquire it and get it ready for use. That includes the purchase price less any discounts, sales tax, delivery charges to the buyer, title fees, and the cost of fitting shelving, signage or refrigeration before the vehicle goes into service. Annual registration, insurance and routine servicing benefit only the current period and are expensed, often through insurance expense or repairs expense.
For example, a van with a list price of $42,000, a $2,000 discount, $2,400 of sales tax and $1,600 of racking installed before first use is recorded at $44,000. The entry debits Delivery Equipment $44,000 and credits Cash or Notes Payable.
Depreciation of delivery equipment
Each period part of the cost is charged to expense. If the van above has a useful life of five years and a salvage value of $9,000, straight-line depreciation is $7,000 a year. The annual entry debits Depreciation Expense and credits Accumulated Depreciation: Delivery Equipment, a contra-asset account. After two years the van's carrying value is $30,000.
Because vehicles wear out with use, some companies prefer the units-of-production method, based on miles driven. Depreciation on delivery equipment is usually reported as a selling expense, since delivering goods to customers is part of selling them. For US federal income tax, cars and light trucks are generally five-year property under the modified accelerated cost recovery system, so tax depreciation often differs from book depreciation.
Repairs, upgrades and disposal
Routine maintenance such as oil changes and tire rotations is expensed as ordinary repairs. Spending that extends the vehicle's life or increases its capacity, such as a replacement engine, is a major repair and is added to the asset's cost or charged against accumulated depreciation.
When a vehicle is sold, traded in or scrapped, depreciation is brought up to date, the cost and accumulated depreciation are removed, and any difference between the proceeds and the carrying value is recorded as a gain or loss. If the van with a $30,000 carrying value is sold for $33,500, the business records a $3,500 gain on sale. Vehicles obtained under a finance or operating lease are recorded as right-of-use assets under current US GAAP rather than as owned delivery equipment.
Records and controls
Because vehicles are valuable, mobile and easy to misuse, businesses usually keep a register of delivery equipment listing each vehicle's identification number, purchase date, cost, depreciation method, accumulated depreciation and location or assigned driver. The register is reconciled to the general ledger balance at least once a year, and vehicles are physically checked against it. Mileage logs support both units-of-production depreciation and the business-use records needed for tax purposes, and they help identify vehicles that are underused and could be sold. Insurance schedules, maintenance records and fuel-card statements are reviewed alongside the register so that every vehicle on the books is accounted for and every vehicle on the road is on the books.