How do I decide whether a purchase is Equipment or just an expense?

Ask whether it will still be providing value a year or more from now. If yes, and the cost is meaningful, it usually belongs here rather than in an expense account — an accountant can help set a firm dollar threshold for your business.

Does buying equipment reduce my profit right away?

Not directly — the purchase increases an asset, not an expense. The cost reaches the income statement gradually over time through depreciation, not all at once on the day of purchase.

1500assetNormal balance: Debitbusiness

1500 — Equipment

A truck, a table saw, a fleet of laptops, a commercial oven — anything the business buys once and expects to use for years, rather than consume in a single job, belongs in Equipment. The test that separates this account from an ordinary expense is time: does this keep providing value next year and the year after, or is it gone the moment it is used?

Equipment is an asset with a normal debit balance. A purchase debits it up by the full cost; nothing about the account itself changes as the equipment ages or wears down. That aging is tracked separately, in Accumulated Depreciation (1510), which sits right alongside this account and reduces it to book value on the balance sheet without ever touching the original purchase price recorded here.

Where exactly to draw the line between capitalizing a purchase here versus expensing it immediately to something like Supplies or Repairs & Maintenance is genuinely a judgment call, often based on cost and useful life. Many small businesses set an informal dollar threshold — anything under a few hundred dollars gets expensed outright, anything more durable and pricier gets capitalized here — and an accountant can help set that threshold sensibly for your situation.

What belongs here

vehicles owned by the business
machinery and major tools expected to last multiple years
computers and other equipment capitalized rather than expensed outright
furniture and fixtures with lasting value
a major software system built or licensed to last for years, if capitalized rather than treated as a subscription

What does not belong here

small consumable tools and materials — Supplies (6450) or Materials (5200)
inventory bought for resale — Materials (5200) or Cost of Goods Sold (5000)
a monthly equipment rental — an ongoing expense, not a purchase, and does not belong in an asset account at all
the gradual loss of value as equipment ages — that is tracked in Accumulated Depreciation (1510), never as a reduction to this account directly

Where it shows up

Appears on the balance sheet paired directly with Accumulated Depreciation just below it, so the two together show the equipment's net book value rather than its original cost alone.

Common questions

How do I decide whether a purchase is Equipment or just an expense?: Ask whether it will still be providing value a year or more from now. If yes, and the cost is meaningful, it usually belongs here rather than in an expense account — an accountant can help set a firm dollar threshold for your business.
Does buying equipment reduce my profit right away?: Not directly — the purchase increases an asset, not an expense. The cost reaches the income statement gradually over time through depreciation, not all at once on the day of purchase.