Santa Claes 🇸🇪🇭🇰🎅 (clacke@libranet.de)'s status on Tuesday, 22-Aug-2023 05:30:32 UTC

When you make a big investment it may be misleading to just say we spent this money, so we "lost" money this year. Instead you say we spent this money, but it wasn't a loss, see, now we have this nice big machine in our factory instead.

That's an asset. Instead of money going from our bank account to Expenses, the money is going from our bank account to maybe some Equipment account in Assets (the bank account itself is also in Assets).

Then, every year as the machine creates revenue you also dole out a bit of expense for the money that went into the machine. Money moves from Assets to Expenses. So if you buy a big machine every five years, now from an accounting perspective instead of taking a big expense every five years you are taking a fifth of a machine of expense every year, deferring the expense to the matching revenue and avoiding spikes in the profit vs loss.