When you make an acquisition, you must account for it as an asset. Your accounting for fixed assets will debit the account for the purchase price of the asset and credit the cash account for the same amount. For example, if a temporary staffing agency purchases $3,000 worth of furniture, your accountant will debit the fixed assets account for the price and credit the cash account for the purchase price. You will also record any interest rate paid on the installments. In addition, your accountant will gauge the fair market value of the exchanged assets. You cannot measure the original asset’s value, so the accountant will carry over the value of the other asset.
Various types of assets are considered fixed assets, including real estate, vehicles, and machinery. Their definition is based on the way they are used. For instance, a car dealership cannot consider vehicles it intends to sell as a fixed asset, while it can consider cars it provides to its employees as an asset. Fixed assets can only be capitalized over a certain threshold, so purchases below this amount will be considered expenses. Consequently, accounting for fixed assets should be done carefully and properly to ensure that all expenses are properly accounted for.
A simple example of a fixed asset is a computer. It has a depreciable life of five years. This means that it will depreciate at $400 annually. Fixed asset accounting should be understood thoroughly in order to make the most of your earnings. In addition to depreciation, it should also reflect any impairment losses. Improper depreciation, or impairment, occurs when assets are not as useful as they were when they were purchased. The company’s accounting books should reflect this loss.
Non-current assets are items of value purchased by an organization for the long-term. They often receive favorable tax treatment and a depreciation allowance. The cost of a fixed asset consists of the purchase price, import duties, and any costs associated with transporting, installing, and removing the asset once it becomes obsolete. Accounting for fixed assets is a very important part of a company’s financial statements, especially for capital-intensive industries such as mining, construction, and retail.
For example, a dog walking business owner may purchase a van to transport clients’ dogs to the park. They may also purchase a business cell phone for use in communication, and use their laptop for marketing and responding to client emails. Eventually, the business owner may want to expand and purchase a building that can operate as a boarding and grooming facility. These items are all examples of fixed assets. These items are different from those that you might be able to expense on your taxes, because they have lower value and are not major investments.
+A business cannot sell its fixed assets within the same accounting year. They cannot be easily converted into cash. These assets will remain on the balance sheet for years. Fixed assets are classified as non-current assets, and appear under the category of Property, Plant, and Equipment (PPE) on the balance sheet. An asset is defined as a resource that can be measured reliably and from which economic benefits can be expected. Other assets include inventories, which are the goods that a company purchases and uses to operate.+
