As part of a financial year-end process, companies with physical assets typically are required to complete an asset inventory. The purpose of an asset inventory is to physically count and document the location of all assets listed on the financial statement. This process is considered part of the preparation required each year end, and typically is scheduled three to four weeks before the actual end of the year.
There are four items that typically must occur in an asset inventory: review of asset list from financial records, physically inspect each asset, determine if valuation must change, and add any new assets. This process can be simple or complex, depending on the number of assets and their relative location. It is important to note that this inventory can be completed by internal staff or by a third party. The most important part of this inventory is to ensure that each item is physically inspected.
A first step in an asset inventory is to review the list of assets that were included in the financial statements from the prior year. All of the items that were disposed of or dismantled during the year should be removed from the list. A copy of the instruction and valuation of the item at that stage should be added to the file.
The next step is to organize the assets by physical location in preparation for an inspection. In order to prepare, an inventory list should be organized. Each item should be issued a unique number and a method of indicating that the item has been included in the inventory. Some firms use stickers while others use a system of bar code scanning to update the records.
There are two items that usually must be checked during the asset inventory: the existence of the item in the location indicated, and the state of the item. For example, if the item is broken or in disrepair, it should be indicated on the inventory list. This may result in a decreased valuation of the item.
Any new assets that were purchased or acquired during the year must be added to the asset inventory list. Details to be included are the asset classification, description, location, and valuation. Any items that are purchased but not yet on the premises can be excluded from the asset list, so long as their value is not included in the asset valuation on the financial statements.