Asset accounting records and reports a company’s financial information related to its balance sheet assets, which are divided into current and fixed groups. Current assets include cash, inventory, and accounts receivable, while fixed assets include intangibles, tangibles, and investments. Asset accounting values these items according to GAAP guidelines and maintains separate depreciation schedules for fixed assets.
Asset accounting focuses on the recording and reporting of financial information related to the financial statement of a company’s balance sheet. The balance sheet reports all of a company’s assets. Accountants must accurately report this information because assets represent a portion of the total wealth or economic improvements made by the business. Balance sheet assets are divided into two groups: current and fixed. Each group contains specific items with values determined using Generally Accepted Accounting Principles (GAAP).
Current assets are the first items reported on the balance sheet in asset accounting. These items include cash and cash equivalents, inventory, accounts receivable, and short-term marketable securities. Asset accounting values these items at current market value, as this information is readily available and the items can be quickly bought or sold on the open market. Current assets can also represent items used by a business to generate sales from normal business operations. The second group of assets on the balance sheet includes a company’s fixed assets.
Fixed assets are items held for long-term use by the business. Companies may have various fixed assets depending on the size and type of business operations. Under GAAP guidelines, asset accounting must divide fixed assets according to one of three groups: intangibles, tangibles, or investments.
Intangible assets include goodwill, patents, copyrights, and trademarks. These items are valued using accounting measures established by GAAP. Industry or business sector may allow companies to value these items differently, depending on the type of intangible asset. The next group of fixed assets on the balance sheet are tangible assets.
Tangible assets include traditional items or land, buildings, machinery, vehicles, fixtures, and computer equipment. Asset accounting generally records these items at historical cost and depreciates this value over a set period of time. GAAP generally allows companies to choose a depreciation method consistent with the type of reported asset across various industries or business sectors. When reporting these fixed assets for tax purposes, accountants must use the Modified Accelerated Cost Recovery System (MACRS) to report depreciation on annual tax returns. Asset accounting must maintain two separate depreciation schedules when depreciating fixed assets.
The final group of fixed assets on the balance sheet are the investments held by the company. These items are classified as held-to-maturity, available-for-sale, and long-term investments. Asset accounting reports these items at current market value. This means that accountants must review the investment market to determine how much these items could sell for at current market rates. Adjustments are then made to these fixed assets to increase or decrease the book value of the asset.
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