In theory, if a purchase provides economic benefits over the course of multiple years, it better reflects the economic reality of the financials to show some sort of expense over the useful life of the purchase to balance the economic benefits being realized.
In practice, government wants more tax revenue today vs tomorrow.
Potato_Octopi on
Which deductions are you referring to? Most expenses are expensed immediately. Long life equipment is both amortized in the P&L and has an accelerated version for tax (MACRS).
When you buy long life equipment it isn’t used up immediately. You’re exchanging one asset (cash) for another asset (equipment). So, your assets aren’t going down by the value of the equipment all in year 1 and your P&L reflects that.
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In theory, if a purchase provides economic benefits over the course of multiple years, it better reflects the economic reality of the financials to show some sort of expense over the useful life of the purchase to balance the economic benefits being realized.
In practice, government wants more tax revenue today vs tomorrow.
Which deductions are you referring to? Most expenses are expensed immediately. Long life equipment is both amortized in the P&L and has an accelerated version for tax (MACRS).
When you buy long life equipment it isn’t used up immediately. You’re exchanging one asset (cash) for another asset (equipment). So, your assets aren’t going down by the value of the equipment all in year 1 and your P&L reflects that.