Importance of Performing an Inventory of Fixed Assets
Performing an inventory of your fixed assets is not something you probably think of doing each year. However, it is a good idea to make sure you have a firm understanding of what your company owns and how it is being reflected on your balance sheet. The best way to do that is to perform an annual inventory of your fixed assets.
What are fixed assets? When accountants use the term “fixed asset,” they are referring to a physical asset that the company acquired and is expected to last more than one year. Examples include computers, vehicles, furniture, printers, etc.
Inventorying your fixed assets involves a process of identifying the assets that the company currently owns. The initial identification of those assets should be done in a systematic way when the asset is originally acquired, such as assigning a unique number that is affixed to the item with a permanent label and then entered into a fixed asset management software package or an excel schedule. This software will enable you to update the listing periodically as assets are acquired or disposed of. If the listing is regularly maintained, an annual inventory will be easier to perform. One way to maintain the list is to inventory the physical assets the company currently owns, comparing that list with your electronic schedule, disposing of assets that are no longer owned, are obsolete, missing or in need of repair.
This activity can be time consuming but will likely save you money. For example an updated fixed asset listing could be used to reduce your personal property tax bill by reducing the number of assets subject to property tax. In addition, an inventory of your physical assets with identification of those that are traditionally purchased might provide insight into assets that could be leased in the future at a lower cost.
Having good fixed asset controls in place and understanding what assets your company owns, the condition of those assets and identifying which ones need to be fixed or sold is an important part of the accounting process. You do not have to go into this process alone, your CPA is here to help! He/She can help you establish a process of inventorying your fixed assets so that your balance sheet more accurately reflects what your company owns. We can help you come up with a plan and simple procedures that would make this process smooth and easy.
Article Contributed by Megan R. Baker, CPA, MBA
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.