An asset is any valuable resource owned by an individual, a company, or an enterprise that can generate money in the future. In layman’s terms, it is anything that a person owns. The term “asset” is commonly used in several fields, such as accounting, business, and finance. But the context is almost the same as each other; it revolves around the fact that an asset is anything that contains a significant economic value. In this article, the fixed asset will be discussed more often.
Assets have many classifications depending on their convertibility, use and purpose, and the basis of their existence. They can either be tangible or intangible, current or fixed, and operating or non-operating.
Tangible holdings are those that you can measure and be expressed in dollars, such as cash, check, vehicle, real estate, land, supplies, equipment, buildings, and any investment. In contrast, intangible ones are items whose value cannot be measured. These are brand and company reputation for most businesses, gained a customer base, and the team behind their business’ success.
Accountants compute these holdings differently depending on their ownership. For business assets, balance sheets are used to provide a thorough breakdown of a company’s resource management, such as how those resources were financed. A business balance sheet contains two types of assets, the current and fixed type.
Here are the basics of business fixed assets for those who are just starting in the business sector.
What is a Fixed Asset?
A capital or fixed asset is a company’s non-current resource, which means that it cannot be converted into cash within one operating cycle. These are long-term tangible items owned and used by a firm to generate cash flow. It is usually listed as property, plant, and equipment on balance sheets. Some examples are:
- Land and the cost of land improvements
- Buildings and all the facilities in it
- Computer equipment and software
- Furniture, fixtures, and office equipment
- Production machinery
- Vehicles and all specialized moving equipment
Multi-million companies try their hardest to invest in illiquid properties, as they provide a sizable monetary value for their future. Fixed resources are vital for a business’s long-term survival and success. However, its purchase is also capital intensive, a problem that a start-up enterprise may encounter. It is essential to take a PP&E (Property, Plant, and Equipment) analysis before making big decisions that can affect your entire business.
Aside from balance sheets, fixed resources also come upon other financial statements such as income and cash flow statements. Except for land, capital resources are subjected to wear and tear as they are tirelessly used for their operations. Wear and tear of a fixed asset register as the depreciation of a company’s net income.
Purchasing and selling of a capital resource come up as a capital expenditure or inflow in a cash flow statement.
Why is Fixed Asset Management Important?
Fixed holdings are your company’s most prized possession. It is the physical structure that supports your empire, thus having significant value for your overall success. Setting up robust and effective property management is important to protect your illiquid resources. Here are smart management tips that you can follow.
1. Transparency is key
The government is widely known as an entity of excessive bureaucracy. Red-taping businesses seem to be a hobby of our public governing bodies. Transparency is always the key. Keep your books organized and updated. Put a checks and balances system in place. Track and record everything, especially those that involve vast amounts of money.
2. Establish a paper trail
With regards to tracking and monitoring, an effective fixed resources management system involves a detailed paper trail for every step made by every user. It might be a tedious process, but it will save you during legal and security business matters. Have a system in place that allows tracking of asset entry and exit, history, depreciation, and other reports.
Also, you can add permission-based access to specific asset items or documents. This way, you can preserve your capital resource’ confidentiality, as well as prevent it from the eyes and hands of an opportunist.
3. Data integrity
Placing a system that manages your capital resources is beneficial to establish 100% data accuracy. There should be no room for calculation errors and input inaccuracies that can render your information useless. Last, an organized system allows easy multi-book access for globalized enterprises.
If you have questions about how this applies to your business, feel free to get in touch with Annette & Co.!