QQuestionAccounting
QuestionAccounting
Per company policy, tools over $1000 are capitalized. What is the correct entry to record a tool purchase of $500?
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Answer
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Step 1:I'll solve this accounting problem step by step:
Step 2:: Understand the Capitalization Threshold
The company policy states that tools over $1,000 are capitalized. In this case, the tool purchase is $500, which is below the capitalization threshold.
Step 3:: Determine the Accounting Treatment
Since the tool costs less than $1,000, it will be recorded as an expense rather than a capitalized asset.
Step 4:: Journal Entry
\text{Credit: Cash} \quad \$500
The appropriate journal entry would be:
Step 5:: Explanation of the Entry
- The debit to Supplies Expense reflects the cost of the tool being immediately expensed - The credit to Cash reduces the company's cash balance by the purchase amount
Final Answer
The correct accounting entry for a $500 tool purchase is: - Debit Supplies Expense: $500 - Credit Cash: $500 This entry expenses the tool immediately because it is below the $1,000 capitalization threshold.
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