Some purchases are used up within the year. Others are used for years. Finance records them differently, and they count in different Scope 3 categories.
What is the difference?
Operating spend | Capital spend | |
What it is | Goods and services used up within the year | Assets used over several years |
Examples | Freight, software subscriptions, repairs, stationery | Machinery, vehicles, IT hardware, fit-outs |
Where finance records it | Expense accounts | Asset accounts, such as Plant and equipment at cost |
Scope 3 category | Usually Purchased goods and services | Capital goods |
Follow your finance team's treatment. If finance expensed a purchase, it is Purchased goods and services. If finance capitalised it, it is Capital goods. A $900 keyboard that finance expensed is not a capital good, even though it lasts for years.
Why is depreciation not a purchase?
Depreciation spreads the cost of an asset over its useful life. A $26,000 machine with a ten-year life might show $2,600 of depreciation every year. Nothing is bought in those years.
Count the asset once, in full, in the year you bought it. Leave out depreciation and amortisation every year.
This also means accumulated depreciation accounts are excluded. They record how much of the asset has been used up, not a purchase.
What about selling or scrapping an asset?
A sale or write-off of an asset is not a purchase. Leave out disposal journals.
What about leased assets?
Leases follow different rules. See Leased sites, landlords and tenants.
Is stock a capital good?
No. Stock you buy to resell, or to make your products, is Purchased goods and services, even when it is expensive and sits in an asset account. Capital goods are assets you use, not goods you sell. See How do I treat inventory and cost of goods sold?
What this means in Avarni
Set asset accounts that hold equipment, vehicles and IT hardware purchases to Capital goods.
Set accumulated depreciation accounts and depreciation expense accounts to Excluded. Avarni excludes depreciation expense accounts by default, but not accumulated depreciation accounts with the type Asset.
If an asset account holds purchases and depreciation together, write a classification rule that excludes the depreciation lines. Otherwise your Capital goods total is too low, or negative.