From the course: Excel: Financial Modeling with Dynamic Arrays

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Capital purchases and the financial statements

Capital purchases and the financial statements - Microsoft Excel Tutorial

From the course: Excel: Financial Modeling with Dynamic Arrays

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Capital purchases and the financial statements

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- [Instructor] Now, let's explore how major asset purchases, like a large piece of equipment, might be recorded and how it then flows through the financial statements. Let's say you've got sales numbers that look like this, and in year one, you make a purchase of a piece of machinery. If we add the machinery cost in year one, we have a huge loss and then a profit in later years. We're going to be using that asset to generate revenue for five years, so we need to spread that $100,000 over the period that it's working for us. If we do it evenly, we simply divide it by five, and that's considered straight line depreciation. This is by far the most common method of depreciation and the method that we'll be using in our case study later on in the course. The top table is how we account for the asset purchase on the cashflow statement and below is what the income statement will look like. The tax deductible expense will be spread across the five years, so when we build our financial…

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