Regardless of the type of business you run, you probably own a property that helps you provide products and services. Your business assets are a valuable part of your operations and must be carefully maintained. Use a fixed asset management system to organize your business property information.
What are fixed assets?
Fixed assets are the items in your business that are not normally converted to cash. These items can be any of the things listed below, but not the earth. They are used to produce goods or services, can be rented to third parties and for use in your business.
• Piece of furniture
• Intangible assets
This type of commercial property has a useful life of more than one year. Inventory is not in this category because it is converted to cash as quickly as possible.
What is fixed asset management?
Fixed asset management is a specialized field in which an accountant must be hired for proper monitoring. Tracking includes recording the purchase date, the amount paid, the vendor the item was purchased from, and most importantly, recording depreciation. Depreciation is the method used to record expense annually. An accounting transaction is used to record an accumulated depreciation amount and depreciation expense. Without going into the technical details of accounting, suffice it to say that if transactions are not recorded correctly, there may be a significant problem filing business tax returns.
There is specific software that can be used in addition to your accounting program if you wish. However, unless that software is published automatically in your accounting module, you will have to make a manual entry which could cause problems if it is not registered correctly. Most accounting programs have modules to record all transactions related to fixed assets, which simplifies procedures.
The importance of fixed asset management
Managing these properties makes things 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 is easier to address the problem if you already know what is happening.
• Know the best times to acquire new assets. This system will show you the right time to take advantage of opportunities to replace or buy assets.
• Meet your tax obligations – When you buy these items, you generally have to depreciate them. The IRS allows the write-off of substantial fixed asset expenses, but keep in mind that you will lose any future expenses over that amount that may affect your tax returns. Fixed asset management helps you accurately assess depreciation expenses and view the depreciation status of an asset.
• Determine the value of your business. Fixed assets add value to the overall value of your business. At the same time, accurate recording of depreciation expenses is also necessary to determine your profit or loss.
This overview is intended to show the importance of the system used to track and depreciate these critical business items. You must have a proper understanding of proper accounting procedures before embarking on this program. Otherwise, how will you know if what you have recorded is accurate?