No matter what kind of business you run, you probably own property that helps you provide products and services. Your company’s assets are a valuable part of your operations and need to be carefully maintained. Use a fixed asset management system to organize information about your business property.
What are fixed assets?
Fixed assets are the items in your business that typically are not converted to cash. These items can be any of the things listed below but not land. They are used to produce goods or services, can be rented to third parties and for use in your business.
• Intangible assets
This type of business property has a useful life greater than one year. Inventory is not a part of this category because it is converted it into cash as fast as possible.
What is fixed asset management?
Fixed asset management is a specialized field in which an accountant should be engaged to track them properly. Tracking includes recording the date purchased, the amount paid, the vendor from whom the item was purchased, and most importantly recording depreciation. Depreciation is the method used to record the expense annually. An accounting transaction is used to record an amount to accumulated depreciation and depreciation expense. Without getting into the technical details of accounting, suffice it to say that if the transactions are not recorded properly then there can be a major problem when it comes time to filing your business tax returns.
There is specific software that can be used apart from your accounting program if you want. However, unless that software automatically posts to your accounting module, you will have to make a manual entry which could lead to problems if not recorded properly. Most accounting programs have modules for recording all transactions relating to fixed assets thereby simplifying the procedures.
The importance of fixed asset management
Managing these properties makes it easier when concerns and opportunities arise. There are several ways this technique can help your business succeed:
• As a small business owner, you know that unexpected events happen every day. When something breaks, it’s easier to address the issue if you already know what’s going on.
• Know the best times to acquire new assets. This system will show you the proper time to take advantage of opportunities to replace or purchase assets.
• Keep up with your tax obligations: When you buy these items, you usually should depreciate them. The IRS does allow for substantial expense write-offs of fixed assets, but keep in mind that you lose any future expense on that amount which can impact your tax returns. Fixed asset management helps you accurately assess depreciation expenses and see an asset’s depreciation status.
• Determine the value of your business. Fixed assets add value to the overall worth of your company. At the same time the accurate recording of depreciation expense is also necessary to determine your profit or loss.
This overview is meant to show the importance of the system used for tracking and depreciating these critical business items. You should have adequate knowledge of proper accounting procedures before undertaking this program. Otherwise, how will you know if what you have recorded is accurate?