Everything you need to know about your oven bookkeeping as a bakery

Professional Guidance for Managing the Most Important Asset in a Bakery

Everything you need to know about your oven bookkeeping by Benchmark Ledger Solutions

For most small bakeries, the oven is the heart of the business. It is the single most important piece of equipment for production, quality, speed, and overall profitability. While mixers, refrigerators, and display cases matter, nothing impacts the operation more than a commercial oven. Because of this, a bakery owner must understand how to categorise the oven correctly, how to record depreciation, how to manage the equipment loan, and what data must be tracked throughout the year.

This article provides a full professional breakdown written at the depth expected from a trained bookkeeper. It covers the entire accounting lifecycle of a bakery oven from purchase to disposal, including the loan, the asset classification, depreciation methods, tracking for repairs and useful life, and the supporting documents a bakery must keep.

Bakery Oven as a Long-Term Asset

Commercial ovens fall under Property, Plant and Equipment, often called PP&E. This category includes long-lasting physical assets used in daily operations.

A commercial bakery oven is considered a long-term asset because:

• It provides value for multiple years

• It supports production

• It is not intended for resale

• It has a measurable useful life

• It requires repairs, maintenance, and periodic replacement

Because the IRS views it as a long-term operational asset, the cost of the oven cannot be expensed all at once unless a specific tax rule is used. Instead, the cost is spread across its useful life through depreciation.

How to Categorise a Bakery Oven on the Chart of Accounts

A typical chart of accounts for a bakery will place ovens under:

PP&E

• Bakery Equipment

• Commercial Oven

• Production Equipment

For most small bakeries, a simplified approach works well. The account is titled “Commercial Bakery Equipment” or “Bakery Ovens” as a sub-account under PP&E. This keeps similar equipment grouped while still allowing detailed tracking.

When the oven is purchased, the full cost of the oven is recorded as an increase to the fixed asset account rather than an expense on the profit and loss statement.

How to Record the Oven Purchase if a Loan is Used

Most bakeries do not purchase ovens with cash because commercial ovens can be expensive. A single full-size convection oven costs anywhere from four thousand to twelve thousand dollars. Deck ovens, rotary rack ovens, or high-end programmable ovens can range from twenty-five thousand dollars to more than one hundred thousand dollars.

Because the cost is high, ovens are frequently financed through an equipment loan. When a loan is involved, you must record both the asset and the loan.

Journal Entry for Purchase with an Equipment Loan

Assume:

• The oven purchase is one hundred thousand dollars

• The bakery pays ten thousand at the time of

• The loan covers ninety thousand

Oven (PP&E) $100,000 (Debit Column)

Cash $10,000 (Credit Column)

Equipment Loan Payable $90,000 (Credit Column)

This entry records:

• The oven is a fixed asset

• The cash reduction for the down payment

• The new liability for the loan

The oven is now part of PP&E and must be depreciated.

How to Categorise the Loan

In the chart of accounts, the equipment loan should be placed under Long Term Liabilities. The name can be:

• Equipment Loan Payable

• Bakery Oven Loan

• Commercial Equipment Note

You may also create a sub-account for the portion due within the next twelve months, which is called the current portion of long-term debt.

Understanding Depreciation for Ovens

Depreciation recognises the reduction in value of the oven as it is used. Since ovens have a long life in a bakery but are subject to heavy daily use, depreciation gives an accurate picture of the cost of using the equipment each year.

Useful Life of a Commercial Oven

The IRS generally categorises commercial cooking equipment under five-year property. This means the oven is depreciated over five years for tax purposes.

However, from an operational standpoint, commercial bakery ovens can last:

• Eight to fifteen years for convection ovens

• Ten to twenty years for deck ovens

• Ten to twenty-five years for rotary rack ovens

Even though ovens may function for more than ten years, the IRS useful life remains five years unless another method is chosen.

Depreciation Methods Available

Common methods include:

• Straight line

• Modified Accelerated Cost Recovery System

• Section 179

• Bonus Depreciation

Most bakeries use a straight line unless advised otherwise by their tax professional.

Straight Line Depreciation Example

Assume:

• Oven cost: one hundred thousand

• Useful life: five years

• Salvage value: five thousand

Annual depreciation = (Cost minus salvage value) divided by useful life

Annual depreciation = ($100,000 minus $5,000) divided by 5

Annual depreciation = 95000 divided by 5

Annual depreciation = 19000 per year

This means nineteen thousand dollars will be recorded as depreciation expense each year.

How Depreciation Appears in the Books

Depreciation affects two accounts:

Depreciation Expense - This is an expense on the profit and loss statement.

Accumulated Depreciation - This is a contra asset account on the balance sheet that reduces the total value of the oven.

Annual journal entry:

Depreciation Expense    $19,000 (Debit column)

Accumulated Depreciation   $19,000 (Credit column)

The book value of the oven decreases each year until it reaches the salvage amount.

Tracking Repairs, Maintenance, and Improvements

A bakery must track all spending related to oven operation. I've listed what this may include below.

Repairs

Repairs restore the oven to working condition without increasing its life.

Examples include:

• Replacing heating elements

• Fixing timers and controls

• Door seal replacements

• Repairing blower motors

• Thermostat replacements

Repairs are booked as expenses, not assets.

Maintenance

Maintenance preserves functionality.

Examples:

• Regular cleaning

• Lubrication

• Calibration

• Vent checks

• Routine inspection

Maintenance is always an expense.

Improvements

Improvements extend the useful life or increase the value.

Examples include:

• Upgrading control panels

• Installing new racks or decks

• Adding programmable systems

• Replacing entire internal assemblies

Improvements are added to the PP and E account and depreciated over the remaining useful life.

Tracking Operational Data for Accurate Bookkeeping

Aside from depreciation and repairs, the bakery must track key information that supports the financial statements. This includes:

Serial number and model information

Important for insurance, warranty, and asset verification.

Purchase documents

Invoices, loan contracts, warranties, shipping records, and installation fees.

Installation costs

If installation requires electrical work, ventilation updates, or structural changes, these costs can be added to the oven’s asset value.

Estimated useful life and expected replacement date

This helps with budgeting and future capital planning.

Energy consumption

Ovens use a lot of electricity or gas. Tracking energy cost helps determine the cost of goods sold more accurately.

Downtime logs

Tracking downtime helps estimate productivity losses.

Repair history

A detailed repair log helps evaluate whether to repair or replace in the future.

Depreciation schedule

A formal schedule shows the remaining book value and helps prepare tax filings.

Warranty expiration dates

For planning future repair budgets.

How Loans Are Tracked Over Time

A bakery must track both principal and interest separately.

Each loan payment includes:

• A principal portion that reduces the loan balance

• An interest portion that is an expense

Monthly entry example:

Assume the monthly payment is two thousand eight hundred

Principal portion is two thousandInterest is eight hundred

Equipment Loan Payable   $2,000 (Debit column)

Interest Expense              $800 (Debit column)

Cash                           $2,800 (Credit column)

This keeps the loan balance accurate and ensures interest is recorded properly.

End-of-Life Accounting for the Oven

When the oven is sold, scrapped, or traded in, the bakery must record the disposal.

Steps:

1. Remove the oven from the PP and E account

2. Remove accumulated depreciation

3. Record cash or trade-in value received

4. Record any gain or loss

Example:

Original cost: $100,000

Accumulated depreciation after five years: $95,000

Book value: $5,000

Trade in value: $10,000

Gain = $10,000 minus $5,000 = $5,000

This gain must be recorded on the profit and loss statement.

How Depreciation and Equipment Loans Affect Financial Reporting

Depreciation and loan tracking help bakery owners understand:

• True cost of production

• Accuracy of net income

• Future replacement needs

• Tax impact

• Cash flow planning

Depreciation lowers taxable income but does not affect cash flow directly. Loan payments reduce cash but do not impact income except for interest. Separating these correctly is essential.

Why a Bookkeeper Is Essential for Managing Oven Assets

A professional bookkeeper helps bakeries by:

• Setting up PP and E correctly

• Creating depreciation schedules

• Choosing the best tax method

• Tracking repairs and improvements

• Classifying installation costs accurately

• Recording loan payments with the correct principal and interest

• Preparing year-end statements for the CPA

• Preventing missed deductions

• Supporting capital planning for new equipment

Bookkeepers ensure that the financial statements reflect reality. For bakeries, the difference between correct and incorrect equipment accounting can change taxable income by tens of thousands of dollars.