What is Fixed Asset Accounting?

Fixed asset accounting is a specific process that tracks the value and changes in the items a company uses to complete business processes. Fixed assets can include a variety of different items, such as computers, software, buildings, equipment, office décor or vehicles, among other items. A company often has a fixed asset accounting department to track these items, calculate depreciation and revalue the items as necessary according to standard accounting principles. Most companies create a set of internal guidelines to follow when accounting for the fixed assets within the company.

Almost all companies have or use fixed assets in their business operations. An important part of fixed asset accounting is to create a dollar limit at which a company will consider an item an asset, rather than an expense. This guideline is in the company’s standard accounting manual and should mirror the national accounting standard supplied by governing accounting bodies. Companies often set a limit of $500 or $1,000 US Dollars (USD) for recording fixed assets. Anything above this dollar limit is therefore an asset and not an expense. Most managers or employees fill out a form to request items recorded as an asset. Further approval is necessary to record the item as an asset in the accounting ledger.

To record assets properly, accountants must value the item at book value or market value according to national accounting standards. Market value is typically used for buildings, vehicles, equipment or land; anything else is at the book value, which is the amount paid for by the company to acquire the assets. A second step to fixed asset accounting is to determine if the asset is depreciable. Again, national accounting standards will provide guidance for depreciable assets that the company should adhere to when creating an internal accounting policy. If depreciable, the fixed asset accountants set up a depreciation schedule for each qualified asset.

A company’s fixed asset accounting department is also responsible for managing the physical assets in a company. Accountants may need to conduct an inventory and physically view each fixed asset in the company’s accounting ledger. This process may be completed quarterly or annually, depending on the number of fixed assets in a company. The purpose of this is to ensure the asset is where it should be and in good working order. Assets no longer needed by the company are listed as a disposal entry in the accounting ledger and the company must then dispose of the asset.