For every business, their Fixed Assets are a significant capital investment that requires several accounting transactions regarding purchases, depreciation, revaluation, disposal, and many other aspects related to Fixed Assets. Fixed Asset Accounting records all these financial activities during a business’s lifecycle in related accounts, thus playing a crucial role in the bookkeeping system.
What are Fixed Assets?
Fixed Assets are the tangible and non-current assets expected to be used for multiple reporting periods in a business. Businesses hold Fixed Assets for production or the supply of goods and services for the long term. Fixed deposits incorporate property, plant, machinery, furniture, fixtures, vehicles, and equipment. Fixed Assets to be recorded in a company’s financial statements are categorized based on the inflow of economic benefits to the business.
Fixed Asset Accounting
Every asset has a separate account in the company’s books, and there are many repetitive transactions related to Fixed Assets to be recorded carefully over multiple reporting periods. Fixed AssetAccounting accounts for the investments you make in assets for the long-term benefits and their capitalized cost that depreciates over time. It distinguishes between the costs to be capitalized and immediately expensed in the books.
Fixed Asset Accounting for Different Life Cycles
Each Fixed Asset’s life cycle includes the following general stages considered for the valuation of Fixed Asset and requires proper journal entries:
- The Acquisition includes purchase costs, shipping costs, the cost for installation or serviceable functions.
- Depreciation that declines the net book value of Fixed Assets, to be evaluated periodically.
- Revaluation – the current fair market value of a Fixed Asset.
- Impairment or writing down – It is the period when the market value of an asset goes lower than the values recorded in the company’s balance sheet.
- Disposition: It is the period when an asset yields no further benefits, and a company wants to dispose of it by selling or scrapping.
Insights to represent Fixed AssetAccounting correctly
- Every Fixed Asset should be recorded at the acquisition cost, and it is necessary to capitalize all acquisition costs, including freight, tax, installation cost.
- It is necessary to estimate depreciation based on an asset’s valuable life. Reevaluation of useful life is also required periodically.
- It is necessary to correctly record each detail of an asset’s depreciation values that can be accurately tracked for disposing of procedure. It is not recommended to depreciate an asset automatically over its useful life.
- Stay updated on forthcoming changes in lease accounting standards.
Companies need to follow accounting regulations and standards for their financial statements, including estimating Fixed Asset valuations. It is necessary to account for Fixed Assets correctly on the basis of depreciation method, depreciation and tax deductions, performing impairment testing, etc., which is efficiently possible with the quality support of BFAG CPA solutions.
BFAG (Boston Financial Advisory Group) provides the best accounting and financial services. We have a team of experienced professionals who can help you in maintaining your books of accounts.
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