Listen to a Business English Dialogue About Five hundred dollar rule
Audrey: Hey Elizabeth, have you heard about the “five hundred dollar rule” in business and finance?
Elizabeth: No, what’s that about?
Audrey: It’s a guideline used in accounting that states any purchase of equipment or assets costing $500 or more should be capitalized and recorded as an asset on the balance sheet.
Elizabeth: Oh, I see. So, it’s a way to determine whether to expense small purchases or capitalize larger ones?
Audrey: Exactly. It helps businesses keep track of their assets more accurately and ensures consistency in financial reporting.
Elizabeth: Are there any exceptions to the five hundred dollar rule?
Audrey: Yes, certain industries or companies may have different thresholds based on their specific accounting practices or regulations.
Elizabeth: That makes sense. So, how does the five hundred dollar rule impact financial statements?
Audrey: It affects the balance sheet by increasing the value of assets and also impacts the income statement by potentially reducing expenses through capitalization.
Elizabeth: Thanks for explaining, Audrey. The five hundred dollar rule seems like an important accounting principle for businesses to follow.
Audrey: No problem, Elizabeth. It’s essential for maintaining accurate financial records and complying with accounting standards.