When booking HVAC (heating, ventilation, and air conditioning) purchases in journal entries, you need to determine whether the purchase is a cost (if it is a repair or maintenance) or a capital cost (if it is a new installation or significant upgrade, which is the value of the asset.).
Here are examples for both scenarios:
1. HVAC Purchase as a Capital Asset
If the HVAC purchase is a significant investment (eg, the installation of a new HVAC system) that adds long-term value to your business, you should treat it as an asset. It will be capitalized and depreciated over time.
Example: The company purchases a new HVAC system for $10,000 on credit.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-15-2024 | HVAC Equipment (Asset) A/c Debit | 10,000 | |
| 08-15-2024 | To Accounts Payable A/c | 10,000 |
Explanation:
- HVAC Equipment (asset) will be debited because the company acquired a new asset that will provide benefits over time.
- Accounts payable will credited because the purchase was made on credit and the company owes the supplier.
2. HVAC Purchase as an Expense
If the HVAC purchase is related to minor repairs or maintenance that does not add significant value to the asset, you will record it as an expense.
Example: The company spends $500 on HVAC repairs, paid in cash.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-15-2024 | HVAC Repairs and Maintenance Expenses A/c Debit | 500 | |
| 08-15-2024 | To Bank A/c | 500 |
Explanation:
- HVAC Repairs and Maintenance Expenses will debited because the repair is an expense for the business.
- Bank will credited because the company has paid for the repairs.
3. Depreciating the HVAC Asset
If you purchased the HVAC system as a capital asset, you need to depreciate it over time. Let’s say the HVAC system is depreciated over five years.
Example: Annual depreciation of $2,000 on the HVAC system.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 12-31-2024 | Depreciation Expense A/c Debit | 2,000 | |
| 12-31-2024 | To Asset-Accumulated Depreciation A/c | 2,000 |
Explanation:
- Depreciation Expense will debited to recognize the annual expense of using the HVAC system.
- Accumulated Depreciation will credited to reflect the reduction in value of the HVAC asset over time.
These examples help illustrate how you can record HVAC-related transactions in your accounting records, depending on whether they are expenses or capital assets.