This article provides logical guidance and detailed accounting for property, plant, and equipment recorded and to be recorded in the accounting books. Let’s have a detailed accounting perspective for the PPE.

Buying property plant & equipment

The following journal entry is posted when buying property, plant, and equipment. Let’s understand with the example.

Example: ABC company purchases office equipment amounting to $25,000 by paying cash. This accounting transaction will be recorded as below.

Description	Debit	Credit
office equipment (assets)	$25,000
Bank/cash (asset)		$25,000

The debit impact of this transaction is recording the addition/purchase of office equipment by $2,5000. This amount is added to the purchase ledger, and assets register. On the other hand, credit impact is recording cash paid to the vendor against buying office equipment.   

Applying depreciation on Property, plant and equipment

Consider that the company uses a straight-line depreciation method, and the expected useful life of the PPE is ten years. In this case, the depreciation for the current year stands at $2,500 ($25,000/10), which will be recorded as follows.

Description	Debit	Credit
Depreciation expense	$2,500
Accumulated depreciation		$2,500

The debit impact of this transaction is recording depreciation expense in line with the straight-line depreciation method. The credit impact is recording a contra entry for the fixed asset and it will be removed when asset is sold or disposed.

Disposal of PPE

Consider the business disposes of the above asset for $4,000 at the end of the ninth accounting year.

At the end of the ninth accounting year, the accounting book is expected to have $22,500 ($2,500*9) under the accumulated depreciation account (contra account). So, the Net book value stands at $2,500 ($25,000-$22,500), and the sales proceeds amount to $4,000. Hence, the business has earned $1,500 ($4,000-$2,500) on disposal of the fixed asset, which will be recorded with the following journal entry.

Description	Debit	Credit
Cash	$4,000
Accumulated depreciation	$22,500
Cost		$25,000
Profit on disposal		$1,500

The debit impact of this transaction is recording cash as received in the bank. This is the payment realized and recorded in the business books.

The second debit removes liability called accumulated depreciation (contra account) from accounting books. It’s removed by debiting because it was created against the cost of equipment, which is to be removed now.

The impact of first credit is removing equipment from accounting books as it’s sold now.

The impact of the second credit is recording income/profit as the business has received $1,500 more than the asset’s net book value.

Conclusion

The PPE is recorded by debiting fixed assets and crediting the cash/accounts payable. Subsequently, depreciation is applied depending on business choice of straight line or reducing balance method.

Depreciation expense is debited from the profit and loss account, and contra entry for the asset is created in the accounting record.

When an asset is sold, its net book value is compared with the sales proceeds. If the sales proceeds are higher than the net book value, profit is recorded; otherwise, loss is recorded.

The balance from the contra account of the fixed asset, accumulated depreciation, is removed by debiting it when the asset is sold. The logic is that this account was created against fixed asset costs. So, this account must be removed as a business is selling the asset.