PP&E – What is PP&E?
Definition: PP&E stands for Property, Plant and Equipment. It represents company assets that are vital to business operations but cannot be easily liquidated.
The term ‘property, plant and equipment’ - or PP&E – refers to an account located on the balance sheet. This account contains all of a company's purchases of property, production/manufacturing plants and equipment at that point in time, minus amortization deductions.
PP&E are a company's non-current assets that are used in the process of doing business. They can be such as land and buildings, motor vehicles, furniture, office equipment, computers, fixtures and fittings, plants and machinery, etc. PP&E assets are not sold directly to a company's customers.
The original balance of the PP&E account will be the combined historic (aka purchase) costs of a company’s property, plants, and equipment. As the company buys more PP&E, the balance will increase, but as time passes, it will also decrease due to depreciation of the PP&E assets in the account.
Depreciation of PP&E
Depreciation is an expense which accumulates due to the continued use of fixed assets like PP&E.
Depreciation of PP&E is considered an expense in accounting since it is matched against the revenue generated through their use. Under accrual accounting, depreciation is expensed over the asset's useful economic life.