Fixed assets are tangible properties that a firm owns and uses in its operations to generate income for the long term. Fixed assets, also known as capital assets, include plant, property, and equipment. These often hold a major part in the financial reports of a company. So, fixed asset accounting plays a key role in determining the accuracy of your company’s financial reports.
Efficient fixed asset accounting helps you get complete visibility into your assets. This will enable you to make a well-informed decision if you need to acquire new assets or can use available assets. This will improve the financial health of your company. In this blog post, we will discuss five best practices for effective fixed asset accounting.
- Capitalization threshold: Asset-intensive companies should distinguish their fixed assets from expense items. Capitalization threshold is the minimum acquisition cost above which an asset should be capitalized in the financial report and depreciated over its useful lifetime. Setting a capitalization threshold will be beneficial for companies as it allows them to avoid material misstatement in the financial reports.
- Labeling your assets: Asset-intensive companies such as oil & gas, mining, chemical, etc. have their fixed assets dispersed geographically in large quantities. Many of these fixed assets are often transported from one location to another to serve their intended purpose. In such cases, tracking these assets is essential and challenging. The inability to track fixed assets can cost the company heavily as the asset may get lost or misplaced.
Tagging your fixed assets with barcodes can be beneficial. Modern mobile solutions facilitate remote bar-code label printing, which allows your technicians to create and print barcode labels right at the job location. This will ensure you won’t lose track of a newly installed asset. The mobile solutions also allow your technicians to fetch information about an asset quickly by scanning the barcode even in poor mobile network coverage.
- Depreciation: Depreciation plays a significant role in maintaining financial statement accuracy. However, companies often use unreliable methods to calculate depreciation value for their fixed assets. A method that works for a particular group of assets (for example laptops) may not work for a different group (for example heavy machinery). To determine the most reliable depreciation method, it is better to classify your fixed assets as per their durability, expected useful life, and use. Then, you can calculate the depreciation rate based on the specific attributes of each group.
- Regular fixed asset inventory: Inventorying fixed assets periodically will help you identify missing assets and ghost assets. Fixed assets comprise a large part of a financial statement. So, the accuracy of these assets is important. Though physical inventory is often seen as a daunting, time and resource consuming process, this can be simplified using a mobile solution. Optical character recognition (OCR) is one of the advanced features of a mobile solution that eliminates the need for manual entry of serial numbers. This will accelerate physical inventory and remove human errors to improve accuracy.
- Fixed asset reconciliation: Reconciliation is the process of comparing your fixed asset subledger with the general ledger periodically to ensure the correctness of figures. Fixed asset reconciliation helps you determine if the depreciation is properly charged, asset disposal is correctly booked, and the addition of new assets to a specific account is justifiable or not.
Choose a mobile fixed asset management solution that will automate the fixed asset reconciliation. Solutions like mAssetTag use GPS functionality of mobile devices to record the most recent location of an asset. This will reduce over-payment of taxes by over 10 to 20 percent.
Maybe you are following all the best practices but how you are executing these practices also matters. Unless you are a small business, paper-based processes are outdated and inefficient. Agile, mobile, highly-configurable solutions can boost the accuracy of your fixed asset management and help with efficient accounting. If you want to learn more about implementing a mobile fixed asset management solution for your company, talk to our experts now on 844-464-6668. You can also visit www.innovapptive.com.
