The importance of tracking fixed assets

Listing defines a fixed asset as a long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be consumed or converted into cash any sooner than at least one year’s time.

A financial services agency may have a limited number of fixed assets such as desks, computers, and a phone system. A manufacturing plant would have all those but also include such things as automated machinery and testing stations. Wherever your business may lie along this spectrum, it does have fixed assets and there are three important reasons for tracking them: for insurance consideration, to report business personal property to taxing agencies, and to support depreciation expenses.

Insurance Consideration

Just as homeowners are encouraged to keep an inventory of their household items for insurance reasons, so too must business owners have their information. As new office furniture, warehouse shelving, computers, tool kits, and what have you are purchased, update the spreadsheet or tag the purchase in the accounting software as a fixed asset. And always, always, always keep the receipts! Should your business experience a loss, you will have at hand supporting information for a claim, which allows faster processing which, in turn, allows your business to get back up and running as soon as possible.

Business personal property tax

Whether your business owns, leases, or rents its premises, businesses are generally subject to personal property tax (depending on your state or municipality). An annual report is submitted showing what assets are still in use, what assets have been added, and which assets have been deleted for whatever reason. Removing old assets is as important as adding new ones since you don't want to be taxed on anything you no longer have.

Depreciation Expenses

Fixed assets over a certain value may have to be depreciated rather than expensed in their entirety when acquired. Accurate tracking will allow you to take the maximum allowable depreciation expense.

As shown here, a lot is riding on the fixed assets list; however, one comprehensive and detailed list will provide the necessary information for all these needs. Next month's article will look at what information that tracking should include. If you need assistance in determining what should be on the list and what shouldn't, give us a call. We'll be happy to help!

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