The document discusses the difference between assets and expenses. Assets are resources that will provide future economic benefits, while expenses represent the use or consumption of assets. An example is provided of a delivery truck purchased for $20,000 that is treated as an asset until its economic benefits are used up over 4 years, at which point the declining balance is treated as an annual expense. The key difference is that assets represent future economic benefits, while expenses represent the consumption of those benefits in the current period.

1. 1.20
ASSETS VS EXPENSES

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3. © Michael Allison. Author’s permission required for external use.
 There is close link between Assets and Expenses
1.20 ASSETS VS EXPENSES
Assets:
An asset is:
1. A resource controlled by the
entity
2. As a result of past events
(transactions)
3. From which future economic
benefits are expected to flow to
the entity
Expenses:
Expenses are:
1. Outflows of economic benefits
2. That will either:
•  Assets
• Liabilities
3. With the ultimate effect of:
•  Owner’s Equity

4. © Michael Allison. Author’s permission required for external use.
 The difference is in economic benefits:
 When the economic benefits of an item will be consumed in the future, this
represents an Asset
 When the economic benefits of the Asset are actually consumed (used up),
this represents an Expense
 Example: a firm purchases a delivery truck for $20,000 on 1 January 2015
that will last for 4 years
2015 2016 2017 2018
$20,000
delivery truck
1.20 ASSETS VS EXPENSES

5. © Michael Allison. Author’s permission required for external use.
 At 1 January 2015, the firm has:
 Assets of $20,000 – $20,000 of the economic benefits of the truck will occur in the
future
 Expenses of $0 – $0 of the truck has been consumed (used up)
2015 2016 2017 2018
$20,000
delivery truck
Asset
$20,000
Expense
$0
1.20 ASSETS VS EXPENSES

6. © Michael Allison. Author’s permission required for external use.
 At 31 December 2015, the firm has:
 Assets of $15,000 – $15,000 of the economic benefits of the truck will occur in the
future
 Expenses of $5,000 – $5,000 of the truck has been consumed (used up)
2015 2016 2017 2018
$20,000
delivery truck
Asset
$15,000
Expense
$5,000
1.20 ASSETS VS EXPENSES

7. © Michael Allison. Author’s permission required for external use.
 At 31 December 2016, the firm has:
 Assets of $10,000 – $10,000 of the economic benefits of the truck will occur in the
future
 Expenses of $10,000 – $10,000 of the truck has been consumed (used up)
2015 2016 2017 2018
$20,000
delivery truck
Asset
$10,000
Expense
$10,000
1.20 ASSETS VS EXPENSES

8. © Michael Allison. Author’s permission required for external use.
 At 31 December 2017, the firm has:
 Assets of $5,000 – $5,000 of the economic benefits of the truck will occur in the
future
 Expenses of $15,000 – $15,000 of the truck has been consumed (used up)
2015 2016 2017 2018
$20,000
delivery truck
Asset
$5,000
Expense
$15,000
1.20 ASSETS VS EXPENSES

9. © Michael Allison. Author’s permission required for external use.
 At 31 December 2018, the firm has:
 Assets of $0 – $0 of the economic benefits of the truck will occur in the future
 Expenses of $20,000 – $20,000 of the truck has been consumed (used up)
2015 2016 2017 2018
$20,000
delivery truck
Asset
$0
Expense
$20,000
1.20 ASSETS VS EXPENSES

10. © Michael Allison. Author’s permission required for external use.
 The difference is in economic benefits:
 When the economic benefits of an item will be consumed in the future, this
represents an Asset
 When the economic benefits of the Asset are actually consumed (used up),
this represents an Expense
$20,000
delivery truck
Asset
$20,000
Year 0
Year 1
Year 2
Year 3
Year 4
Expense
$5,000
Asset
$15,000
Expense
$10,000
Asset
$10,000
Expense
$15,000
Asset
$5,000
Expense
$20,000
1.20 ASSETS VS EXPENSES

11. © Michael Allison. Author’s permission required for external use.
TASK
In-class Homework
Ex1.3 X
Ex1.4 X
Ex1.5 X
Ex1.6 X
Ex1.7 X