What is Asset Accounting?
Asset accounting focuses on the recording and reporting of financial information related to a company’s balance sheet financial statement. The balance sheet reports all assets of a business. Accountants must accurately report this information because assets represent a portion of the total wealth or economic improvements made by the company. The balance sheet assets are broken out in two groups: current and fixed. Each group contains specific items with values determined using Generally Accepted Accounting Principles (GAAP).
Current assets are the first items reported on the balance sheet under asset accounting. These items include cash and cash equivalents, inventory, accounts receivables and short-term marketable securities. Asset accounting values these items at current market value since this information is readily available and the items can be quickly bought or sold on the open market. Current assets may also represent the items used by a company to generate sales from normal business operations. The second group of assets on the balance sheet includes the fixed assets of a company.
Fixed assets are items held for long-term use by the company. Companies may have several fixed assets depending on the size and type of operations of the business. According to GAAP guidelines, asset accounting must divide up fixed assets according to one of three groups: intangible, tangible or investments.
Intangible assets include goodwill, patents, copyrights and trademarks. These items are valued using accounting measurements set forth by GAAP. The business industry or sector may allow companies to values these items differently, depending on the type if intangible asset. The next group of fixed assets on the balance sheet is tangible assets.
Tangible assets include the traditional items or land, buildings, machinery, vehicles, fixtures and computer equipment. Asset accounting usually records these items at historical cost and depreciates this value over a set amount of time. GAAP usually allows companies to choose a depreciation method consistent with the type of asset reported among several business industries or sectors. When reporting these fixed assets for tax purposes, accountants must use the Modified Accelerated Cost Recovery System (MACRS) to report depreciation on annual tax filings. Asset accounting must keep two separate depreciation schedules when depreciating fixed assets.
The final group of balance sheet fixed assets is investments held by the company. These items are classified as held-to-maturity, available for sale and long-term investments. Asset accounting reports these items at the current market value. This means accountants must review the investment market to determine how much these items could be sold for at current market rates. Adjustments are then made to these fixed assets to increase or decrease the book value of the asset.
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