Fixed Assets Manual - Setting up a fixed assets accounting system
Setting up a fixed assets accounting system
Before you can start using Exact Fixed Assets, you should give a number of
questions careful consideration. They determine the behavior of your company
in a later stage. For example, whether you will use years, quarters or
months as depreciation periods and which depreciation method (or methods)
you will be using. Once you have answered these questions, you can set up
your fixed assets accounting system. See
[Creating master data and defining
settings].
Whichever method of depreciation is used, the total accumulated
depreciation at the end of its tax life will equal the original tax basis of
the property. It is important to differentiate between depreciation methods
used in financial accounting and tax accounting. While methods like
sum-of-the-years'-digits and double-declining-balance depreciation or
depreciation based on actual value are used for financial accounting, tax
legislation prescribes less accelerated methods, such as the straight-line
method. It is generally to a company's advantage to take the shortest tax
life possible. Also, the difference of time between depreciation and cash can
be used as a steering mechanism. Shorter lives and accelerated depreciation
allows a company to receive tax benefits from depreciation sooner.
You can use Exact Fixed Assets to determine the value of your fixed assets over a
period of time. The value of your assets reduces through time. The time
during which an asset is used to represent an economic value. This time is
divided into periods. In each period, the decrease in value of the asset is
recorded in the general ledger. This decrease in value is referred to as
'depreciation costs'.
Calculating depreciation is necessary to ensure that your balance sheet
shows the correct value of your fixed assets and your profit and loss
statement the correct costs of your assets. Thus, there is an important
connection between the assets system and the financial system. By
considering a few questions carefully, considerable advantage can be taken
out of your accounting system.
Besides a good identification of your assets, you need to answer the
following questions:
- How will you organize your fixed assets in the accounting system?
- How many periods will you use within a financial year?
- Which depreciation methods do you want to use in the reports?
- Which depreciation method do you want to use for actual depreciation
in your financial accounting system?
Once these questions have been answered you can set up your fixed asset
accounting system. However, for each fixed asset you create in Exact Assets, you must decide:
- The total depreciation amount
- The number of periods
- The depreciation method used for the fixed asset
How to organize your fixed assets
In Exact Fixed Assets, there are three levels of fixed assets:
Asset group
The asset group groups assets and links an asset to the general
ledger. An asset group is the top level of your fixed assets organization
chart. All assets that are grouped in the same asset group are linked to the same
general ledger number. This way you have for example several cars in one
asset group, so these are linked to the general ledger account 'Cars'.
Through the asset group, the depreciation entries are recorded in the
general ledger of the linked financial accounting system. The depreciation
entries can be generated automatically per asset group, asset set or
individual asset in a general journal. See Assets accounting system.
Asset set
An asset set groups fixed
assets with the same depreciation behavior. An asset set will be linked to
an asset book and a depreciation method. An asset book is linked to a
calendar. Every asset book is linked to a calendar. For journalizing of for
example, depreciations, the asset set is linked to an asset group.
Asset
An asset is the last and third level of your fixed assets organization
chart. An asset is the actual durable means of production which is going to
be depreciated.
Number of periods within a financial year
The time during which a fixed asset is depreciated is divided into
periods. In each period, the depreciation is calculated and possibly
journalized. In Exact Fixed Assets, you can define periods yourself, for
example, you can decide to depreciate quarterly, monthly or only once a year. However, you can also divide the year into 13 periods of four weeks
each. Note that for each posting book, a primary calendar should be linked.
The posting book should always correspond to the period-date table created
in Exact Finance. So it is not possible to create a monthly period-date
table and depreciate the financial transactions weekly. Calendars, which are different
from the posting book/period-date table, can be created and linked to
secondary asset books. Transactions in secondary asset books are not
registered in Exact Finance. This is to prevent inconsistencies.
See [Calendar].
Depreciation methods to use
In Exact Fixed Assets, multiple valuation methods can be used
simultaneously. These valuation methods are recorded per asset book. For
different types of assets you can create different depreciation methods. You
can also create different depreciation methods for one asset, in order to
present or simulate your figures. In your reports, you can calculate the
value of the same fixed assets using different depreciation methods or
calendars. Of course only one depreciation method will be used for actual
depreciation in Exact Finance.
Depreciation method to use for actual depreciation
In most countries, you cannot change your depreciation method except in
special circumstances. So consider carefully which depreciation method you
want to use for actual depreciation of your fixed asset. When you change it, the old depreciation will be reversed.
Fixed Assets Manual >
Contents > Setting
up a fixed assets accounting system
| Main Category: |
Support Product Know How |
Document Type: |
Support - On-line help |
| Category: |
On-line help files |
Security level: |
All - 0 |
| Sub category: |
General |
Document ID: |
18.336.627 |
| Assortment: |
Exact Financials
|
Date: |
15-12-2008 |
| Release: |
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Attachment: |
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| Disclaimer |