Im taking accounting 1 need help please?

Question

ok we are doing balance sheets and im having some trouble with where to put the money. I dont know when its an expense or not. one question said the business bought a car for 14,000 so i put -14,000 under cash and +14,000 under vehicles. but why wouldnt this go under expenses??

Like what is an expense?

another question said paid salaries for 400 so i goes -400 under cash and +400 under expenses?

so whats the difference why is this an expense?

I know this question probly makes no sense but im lost please help

thanks

Answer 1

If an item provides value for the company for more than one period, then it is typically considered an asset and would be booked to the balance sheet just like the vehicle you describe.  Other examples include furniture and fixtures, computers hardware and software, etc.  These have value greater than one year - you book them to fixed assets and then depreciate them over time (record a little bit of expense each month).

Or you might pay $6000 for an insurance policy that provides coverage for the full year.  Does it makes sense to expense the entire $6000 in one month considering the policy covers a full year?  No.  So you code it to prepaid expense (an asset), and then expense $500 per month for 12 months.

Salary expense is related to that specific period.  People do work in order to generate revenue, so salary expense for the period is matched up to that period's revenue (the matching principle).

Answer 2

An expense is something minor.  For example:  Office supplies and trash cans.  A vehicle is something major.

Minor items are expensed and flow through to the income statement.  Major items are capitalized on the balance sheet and depreciated over a certain amount of time.  The depreciation portion is an expense.

Good luck.  Accounting is fun!!

Answer 3

If you buy something for a business, it is an Asset.

Dr. Car

Cr. Cash

If you incur something while doing business, it is an expense:

Dr. Salaries Expense

Cr. Cash

The reason salary is an expense and a car is not is because Salary is incurred while doing business but the car was bought for the business to be conducted so an asset will be depreciated and expensed overtime. I hope I made sense, I am just an accounting Major.