Journal Entry for Recognition of Assets

Journal Entry for Recognition of Assets

Journal entry for recognition of assets shall be recorded in the books of accounts subject to fulfillment of some conditions. These condition have been listed & explained below

·         Definition of asset.

·         Future Flow of Economic benefit.

·         Reliable measurement of Asset.

Definition of Asset

Asset definition is one of the most important conditions for asset recognition in the books of accounts. Asset is a resource controlled by the organization and it future economic benefits are expected to flow from the resource.

Future Flow of Economic Benefit

Another important condition for recognition of asset is flow of future economic benefit; if such flow is not expected then asset would not be recognized in the books of accounts. For example machinery purchased, but cannot be installed due to technical reason, and then the machinery shall not be recorded as asset. 

Reliable Measurement of Asset

Third important condition for recording the journal entry for an asset is its reliable measurement. If the asset cannot be measured, then it would not be recorded in the books of accounts.

Recognition of Asset

If the asset qualifies or meet all the above condition, then journal entry for recognition of asset would be recorded in the books of accounts. The rule for recording the journal entry for asset is (increase in asset is debit and decrease in asset is credit).

For example an asset is purchase for 20,000/- shall be recognized in book of account as under

Date	Particular	Ledger Folio	Dr.	Cr.
01-06-2016	Machinery		40,000
01-06-2016	Cash			40,000