What are Fixed Assets in Accounting?

What are Fixed Assets in Accounting?

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Rashmi
Rashmi Karan
Manager - Content
Updated on Mar 24, 2023 17:13 IST

The article talks about fixed assets, their depreciation, importance of fixed asset management, and use of fixed asset software for efficient fixed asset management.

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Fixed assets have an important financial value for your business, which is why it is very important to control them correctly. Learn what are fixed assets and how to manage them effectively for the success of your business.

Content

What is a Fixed Asset?

A fixed asset is a company asset that cannot be converted into liquidity in the short term. It is a business asset, whether tangible or intangible.

Examples of fixed assets are furniture, office equipment, machinery, real estate, investments, patent rights, transportation equipment, etc. They are included in the balance sheet. Investments in shares, bonds and securities issued by affiliated companies are also included in fixed assets.

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Types of Fixed Assets

Fixed assets according to the material nature of the good are:

Tangible Fixed Assets

They are the material assets of the company. They are divided into land and natural assets, buildings, technical installations, machinery, tools, other installations, furniture, equipment for computer processes, transport elements and other tangible assets.

Intangible Fixed Assets

They are those assets of the company that do not have a physical presence. They are divided into research and development expenses, administrative concessions, industrial property, goodwill, transfer rights, computer applications, and advances for intangible assets.

Investments 

They are the shares, bonds and securities issued by affiliated companies whose term is greater than one year. The General Accounting Plan includes long-term financial investments in related parties, other long-term financial investments, and long-term bonds and deposits.

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Depreciation of Fixed Assets

As mentioned earlier, fixed assets usually remain in the company for more than one year, so the initial investment or the cost of the said asset must be accrued according to the useful life of the asset. The company’s accounting must carry out the depreciation of the fixed asset during the years that the asset remains in the company.

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Why is the Control of Fixed Assets Important?

In a small or medium-sized company, taking an inventory of assets is not a very cumbersome task, but this is an activity that, if carried out poorly, can have negative consequences, such as the loss or deterioration of machinery. 

When a company has correct control in the depreciation of assets, it obtains advantages such as:

  • Ability to cross-reference the information with financial statements
  • Knowledge about the value of each asset and its respective useful life, location, status and responsible personnel under their charge.
  • Ability to make better decisions regarding asset investment
  • Greater use of your fixed assets
  • Knowledge of maintenance periods, transfers and any movement of each fixed asset.

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Why Should You Use Fixed Asset Software?

Technology has made it possible for office processes to automate. Software such as SAP Business One ERP allows you to have good administrative management of your company’s assets. These are examples of some of its benefits such as:

  • Up-to-date planning of the depreciation of your company’s fixed assets.
  • Calculation of depreciation of assets on a monthly basis.
  • Manage the purchase and sale of assets using documents such as invoices, credit notes, reserve invoices, etc.
  • Creation of cash discount payments for purchased assets and automatic discount of the discounted part of assets by automatically creating a capitalization credit note.
  • Changing the asset class of a fixed asset by creating a transfer document.
  • Track the appreciation of a fixed asset and the creation of its respective document.
  • Applying more than one set of accounts to each asset, so that depreciation and transactions apply to more than one set of entries at the same time.
  • Revaluation of fixed assets.
  • Application of multi-dimensions to assets in cost accounting.
  • Creation of reports such as status reports, transaction reports and import of fixed assets.
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How to Manage the Fixed Assets of Your Company?

Since the fixed asset is a very important part of the evaluation of profitability, their management is even more important. Here are some tips on how to manage these assets of your company:

Create an inventory: Always create an inventory of all your fixed assets, including their purchase date, location, value, and depreciation schedule.

Monitor usage: Keep track of asset usage to ensure their use to their full potential. Identify assets that are underutilized and determine if they can be repurposed or sold.

Track maintenance: Keep track of maintenance schedules and repairs for each asset, this helps in extending the asset life and reducing the chances of breakdowns or accidents.

Set up depreciation schedule: Maintaining a depreciation schedule of the fixed asset will help you to accurately calculate their value and plan for replacements or upgrades.

Use asset tracking software: As mentioned, asset tracking software will help manage the assets more efficiently. These tools can automate various tasks of asset management.

Conduct regular audits: Conduct regular audits of the assets to ensure they are all accounted for and in good condition.

Conclusion

Fixed assets are of fundamental importance in large and small businesses, since if you have the correct information, you can know the past, monitor the present and program the future of business investments, both in the short and long term. To achieve this, it is necessary to consider the company’s own needs and evaluate the policies they have for planning or managing its assets.


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About the Author
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Rashmi Karan
Manager - Content

Rashmi is a postgraduate in Biotechnology with a flair for research-oriented work and has an experience of over 13 years in content creation and social media handling. She has a diversified writing portfolio and aim... Read Full Bio

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