Fixed asset accounting tracks the value and changes of items a business uses for operations. Companies have internal guidelines for recording fixed assets, including a dollar limit for treating an item as an asset. Accountants must value assets at book or market value and determine if they are depreciable. The department is also responsible for managing physical assets through inventory and disposal entries.
Fixed asset accounting is a specific process that tracks the value and changes in items that a business uses to complete business processes. Fixed assets can include a variety of different items, such as computers, software, buildings, equipment, office furnishings, or vehicles, among other items. A company often has a fixed asset accounting department to track these items, calculate depreciation, and revalue the items as necessary according to standard accounting principles. Most companies create a set of internal guidelines that must be followed when accounting for fixed assets within the company.
Almost all companies have or use fixed assets in their business operations. An important part of fixed asset accounting is creating a dollar limit at which a business will treat an item as an asset, rather than an expense. This guideline is found in the company’s standard accounting manual and should reflect the national accounting standard supplied by government accounting agencies. Companies often set a limit of $500 or $1,000 US dollars (USD) to record fixed assets. Anything above this dollar limit is therefore an asset and not an expense. Most managers or employees complete a form to request items recorded as an asset. Additional approval is required to record the item as an asset in the ledger.
To record assets correctly, accountants must value the item at book value or market value in accordance with national accounting standards. Market value is typically used for buildings, vehicles, equipment, or land; anything else is at book value, which is the amount paid by the company to acquire the assets. A second step for fixed asset accounting is to determine if the asset is depreciable. Again, national accounting standards will provide guidance for depreciable assets that the company must adhere to when creating an internal accounting policy. If it is depreciable, fixed asset accountants establish a depreciation schedule for each qualifying asset.
A company’s fixed asset accounting department is also responsible for managing a company’s physical assets. Accountants may need to take inventory and physically view each fixed asset in the company’s ledger. This process can be completed quarterly or annually, depending on the number of fixed assets in a business. The purpose of this is to ensure that the asset is where it should be and in good working order. Assets that the company no longer needs are listed as a disposal entry in the ledger and the company must then dispose of the asset.
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