A tangible object that is purchased by a company for long-term use in production of income and is not to be converted into cash within at least one yearâ€™s time is called fixed asset. If the operating cycle of the company is more than twelve months, the fixed asset will not be converted into cash for that period.
At times fixed assets are together termed as â€˜plantâ€™. Examples of fixed assets could be real estate, building, furniture, equipment etc. A company generally buys a fixed asset for producing or supplying goods or services, for operational use or for renting to third parties. There can be intangible fixed assets as well like goodwill, copyright, trademark etc.One can get more examples of fixed assets by searching topics like fixed assets homework answers online.
Types of fixed assets
Fixed assets can be mainly divided into two types â€“
The assets refer to objects like various hardware, equipments, building, vehicles, land, furniture etc. These are the tangible requirements for maintaining and operating a business.To check the value, the price required to obtain them has to be checked then the depreciation strategies have to be applied. Fixed assets like land does not depreciate, they might appreciate with long time. This factor should be considered in the balance sheet.
These assets refer to license, goodwill etc. Obtaining value of intangible assets might be very difficult as accounting intangible assets is really tedious.Students can search topics like fixed assets homework answers online to know more about tangible and intangible assets.
Importance of fixed assets
What is depreciation of fixed assets?
With time, fixed assets may lose value. These assets are expensed in separate way as they provide income for longer period of time. Assets that are tangible can go through depreciation with time and assets that are intangible can go through amortization. There is a certain amount kept annually to expense the cost for assets.
The balance sheet shows the decrease in the value of asset along with its depreciation amount. The company can then compare the cost of the asset with the long-term value. According to the depreciation in business, the cost paid for the asset may vary from the current price of the asset.
If asset contains natural resources, for example, land, then there can be no depreciation. To know more on depreciation, students can search online for links like fixed assets homework answers.
Management of fixed assets
The process of accounting that keeps an account of the fixed assets is called management of fixed assets. This is done for purposes like maintenance, financial accounting etc. It is a challenging task for companies to check the quantity, location, condition, depreciation and maintenance of fixed assets. More on management of fixed assets can be learnt by searching topics like fixed assets homework answers online.
Importance of fixed asset management for business
A proper management of fixed asset is very important for a firm for the following reasons â€“
When a specialized management system is used to track fixed assets, every minute detail about any action made by any user is recorded. It can be a cumbersome work but if done properly, it can provide complete security to the business. If this record is supported with controlled access then the system becomes completely confidential, bringing full security to the firmâ€™s data. The access to the data can be easily hidden from those who are not intended to view the same.
Nowadays, all companies, be it small or big, are being scrutinized by government bodies and other regulatory boards. Thus it is very important for firms to have transparency in their records. Even when investors think about investing in a companyâ€™s shares or lending money, they go through the records and accountability forms the basis of their decision. Thus proper management of assets is necessary.
When businesses are operating on a global platform, a specialized system of management will help the information regarding asset to be shared across the globe with different figures. This also helps in complying with local as well as global policies of depreciation.
Human error can never be accounted, if any data is inputted inaccurately, the complete calculation will be incorrect. Thus using specialized accounting system brings more accuracy.
If a company has a specialized asset management system, then it does not have to make unnecessary investment to buy software licenses. The risk of under-purchase of software licenses is also lessened.
All companies try to derive more profit from lesser resources.Â A systematic asset management register can help getting a centralized record that can be used by all departments and is in a simple format so that it can be understood by all. Proper communication with transparency can help in carrying out business processes easily.
The process of making reports and forecasting are tedious tasks. Absence of proper tools can make the job even difficult even for the best professionals. Presence of a specialized asset management system provides standard forecasting and reporting templates that allow easy access to all. This can serve as a boon to generate correct reports during busy schedules.
Most companies are over insured than their actual assets. Audits clarify that almost twenty percent of the assets shown are actually not present. When proper accounting is done, these kinds of discrepancies cannot arise.
When data is managed without a system, there are chances of discrepancy, whereas an asset management system with strict security parameters can provide automated data that is free from inaccuracies.
Thus, fixed assets and their management form an integral part of financial accounting. Fixed assets help in operational activities of a business in long term perspective and its management is important to know the asset that a firm has, thus students should have a clear concept about fixed assets. More knowledge on fixed assets can be obtained by searching for topics like fixed assets homework answers online.