Reconnect to Lesson 01's equipment purchase. Sarah needs to classify three new purchases — which are assets and which are expenses?
Three Receipts, Two Different Rules
Last lesson, Sarah learned that her $15,000 3D printer is a long-term asset — not an everyday expense. Today, the problem gets harder. She has three new purchases to classify, and each one follows a different rule. If she gets this wrong, her financial statements will mislead investors.
Sarah knows the printer is an asset. But what about the $200 of printer paper? What about the $3,500 delivery scooter? Without a clear rule, every purchase becomes a guess. And guesses lead to wrong financial statements.
The question for today: How do you decide whether a purchase becomes an asset (capitalized) or an expense (recorded immediately)?
The answer involves three concepts: capitalization, useful life, and salvage value.
TechStart Solutions is expanding. Sarah has three receipts on her desk: a $15,000 3D printer, $200 of printer paper, and a $3,500 delivery scooter. Her accountant asks: which of these become assets on the balance sheet, and which are expenses on the income statement? Sarah needs a clear rule.
Duration: 3:45
Here are the three purchases Sarah needs to classify:
$15,000 — 3D Printer
Will last 7 years. Expected to sell for $2,000 at the end.
Asset$200 — Printer Paper
Will be used up within the month. No resale value.
Expense$3,500 — Delivery Scooter
Will last about 5 years. Expected to sell for $500 at the end.
Asset1. In Lesson 01, Sarah learned that the $15,000 3D printer is a long-term asset. Why can't she expense it all at once?
2. Sarah has three purchases: a $15,000 printer (lasts 7 years), $200 of paper (used in a month), and a $3,500 scooter (lasts 5 years). Which should be expensed immediately?
3. What is the core formula that connects cost, salvage value, and the amount available for depreciation?
Discussion Prompt (3 minutes):
Imagine your school buys the following items. With a partner, decide which are assets and which are expenses:
- A $2,000 projector for the auditorium (lasts 10 years)
- $50 of whiteboard markers (used up in a semester)
- A $800 lawn mower for the grounds crew (lasts 6 years)
- $300 for a one-year software license
Now that you can see the problem — some purchases are assets, some are expenses — the next phase will teach you the exact rules for deciding. You will learn how to estimate useful life (how long an asset lasts), salvage value(what it is worth at the end), and how to calculate the depreciable base — the amount of cost that will be spread across the asset's life.