Office Equipment

Office equipment is a long-term asset account that records the cost of the machines a business uses to run its offices. Typical items include computers and monitors, printers, copiers, scanners, servers, telephone systems and audio-visual equipment for meeting rooms. Because these items are used for more than a year and are not held for sale, they are reported as fixed assets within property, plant and equipment and depreciated over their useful lives.

Office equipment is usually kept separate from furniture and fixtures, such as desks and shelving, and from production machinery recorded as equipment. The split matters because office machines tend to have short lives and become obsolete quickly, and because their depreciation is normally reported as an administrative expense rather than as part of the cost of making products.

When a small accounting firm buys laptops for its staff and a large printer for the office, it expects to use them for several years. Counting the full price as a cost in the month they arrive would make that month look unusually expensive and the following years look unusually cheap.

So the firm records the machines as things it owns and spreads their cost over the years they are expected to be useful. Paper, toner and repairs are different: they are used up quickly, so they are counted as costs straight away.

Office equipment is recorded at its purchase price plus costs needed to make it ready for use, such as sales tax, delivery, installation and setup. Annual maintenance contracts, supplies and routine repairs are expensed as incurred. Many businesses expense low-cost items, such as keyboards or small printers, below a set capitalization threshold, an application of materiality.

Software needs separate thought. Software bought with a computer and needed to run it is usually included in the hardware cost. Separately purchased software licenses may be recorded as an intangible asset and amortized, while subscriptions to cloud software are generally expensed over the subscription period, with certain implementation costs capitalized under specific rules.

For example, a firm buys a multifunction copier for $8,900, plus $600 of sales tax and $100 of installation. It debits Office Equipment $9,600 and credits Cash or Accounts Payable.

Office equipment is depreciated over a relatively short useful life, often three to five years for computers and five to seven years for other office machines. Continuing the example, if the copier is expected to last four years with a salvage value of $800, straight-line depreciation is $8,800 divided by four, or $2,200 a year. The yearly entry debits Depreciation Expense and credits Accumulated Depreciation: Office Equipment. After two years the copier's carrying value is $5,200.

For US federal income tax, computers and many office machines are generally five-year property under the modified accelerated cost recovery system, and qualifying purchases may be expensed immediately under Section 179 or through bonus depreciation. Tax depreciation therefore often runs ahead of book depreciation.

Copiers and similar machines are often obtained under a lease rather than bought. Under current US GAAP, most leases longer than twelve months are recorded on the balance sheet as a right-of-use asset and a lease liability, rather than as owned office equipment.

Technology changes fast, so office equipment can lose its usefulness long before it stops working. Businesses review useful lives regularly and, if necessary, shorten them going forward. When equipment is sold, recycled or scrapped, depreciation is brought up to date, cost and accumulated depreciation are removed, and any gain or loss is recognized, as for any disposal of fixed assets. Old computers also need their data securely erased before disposal, a control that matters as much as the bookkeeping.

Laptops, phones and tablets are portable and easily lost or stolen. Businesses commonly tag each item, record it in a fixed-asset register with its user and location, and check the register against the items actually held at least once a year. Items assigned to departing employees are collected as part of the exit process. Linking the register to the IT department's device inventory helps make sure that every device on the network is on the books, and every device on the books can be found. Like delivery equipment and other asset classes, office equipment has its own ledger accounts so that its cost, depreciation and disposals can be tracked and reported clearly.

• IRS Publication 946, How To Depreciate Property