Key Concepts
A non-current asset is recorded at its cost, which is more than just the price tag. Its cost includes:
These extra costs are added to the cost of the asset because they are needed before the asset can be used to earn income.
A business can obtain a non-current asset in three ways, each with its own double entry:
| How it is obtained | Debit | Credit |
|---|---|---|
| Bought in cash | Non-current asset (+asset) | Cash at bank or Cash in hand (−asset) |
| Bought on credit | Non-current asset (+asset) | Trade payables — supplier (+liability) |
| Contributed by the owner | Non-current asset (+asset) | Capital (+equity) |
Note: when a non-current asset is bought on credit, the supplier is still recorded as Trade payables — [name], just like a supplier of goods. Always name the supplier.
The cost is the price plus everything needed to get it working — delivery and installation costs (if any) are added to the purchase price of the non-current asset. Then ask how it was paid for: cash (Cash at bank or Cash in hand), on credit (Trade payables), or brought in by the owner (Capital).
(1) Bought by cheque. Harbour Barbers buys a set of barber chairs for $6,000, plus $200 delivery and $300 installation, paying by cheque. The total cost recorded is $6,000 + $200 + $300 = $6,500.
| Date | Particulars | Dr ($) | Cr ($) |
|---|---|---|---|
| 20X5 | |||
| 3 Jan | Fixtures and fittings | 6,500 | |
| Cash at bank | 6,500 |
(2) Bought on credit. Harbour Barbers buys a mirror-and-cabinet unit for $3,000 on credit from a supplier, Faizal.
| Date | Particulars | Dr ($) | Cr ($) |
|---|---|---|---|
| 20X5 | |||
| 9 Jan | Fixtures and fittings | 3,000 | |
| Trade payables — Faizal | 3,000 |
(3) Contributed by the owner. Imran brings in his own hair-styling station, worth $2,000, for the business to use.
| Date | Particulars | Dr ($) | Cr ($) |
|---|---|---|---|
| 20X5 | |||
| 15 Jan | Fixtures and fittings | 2,000 | |
| Capital | 2,000 |
Recording only the price tag. Delivery and installation needed to get the asset working are part of its cost — leaving them out understates the non-current asset.
Crediting Cash at bank for a credit purchase. If the business has not paid yet, the credit entry goes to Trade payables — [supplier], not Cash at bank.
Confusing an asset contribution with a cash contribution. When the owner brings in an asset (not money), the entry is Dr Non-current asset / Cr Capital — no cash account is involved at all.