In this article, we explore what fixed inventory is and some reasons why it is important. We also share its three different types and our process to ensure its accuracy in 10 steps. Read on to learn more.
Fixed asset inventory is a systematic record of tangible assets owned by a company that have a useful life of more than one year and are not intended for sale during the normal course of business. These assets include equipment, machinery, buildings, and land, among others.
Example: At the fiscal year's end, ABC Corp reviewed its fixed asset inventory to ensure accuracy in documenting company-owned machinery, buildings, and land. The review excluded sale items and focused on long-term assets such as new CNC machines and a recently acquired warehouse.
The key elements of a fixed asset inventory include:
This provides a clear understanding of the asset's type and nature.
Many companies use identification numbers or barcodes to easily track and manage their assets.
Helps in determining the age of the asset and its possible depreciation.
The purchasing price of the asset.
This represents the reduction in the value of the asset over time due to wear and tear, aging, or obsolescence.
This is the difference between the initial cost and the accumulated depreciation.
Indicates where the asset is physically located, which is especially useful for larger organizations with multiple locations.
This can be categorized as new, good, fair, or poor, based on physical inspection.
The expected time period the asset will serve the company.
Identifies who is in charge of or using the asset.
There are three types of fixed asset inventory. Let’s explore each below:
These are tangible items such as machinery, buildings, furniture, and equipment that have a physical presence and can be seen and touched.
Example: After a visit to XYZ Corp's main facility, investors were impressed by the vast array of machinery, state-of-the-art equipment, and the expansive headquarters building. Each of these items, from the ergonomic office furniture to the production machines, represents the company's physical fixed assets.
These are non-physical assets such as patents, copyrights, trademarks, and goodwill. Even though they don't have a physical presence, they hold significant value for businesses.
Example: Tech Innovators Inc. recently acquired a patent for a groundbreaking device, bolstering its portfolio of copyrights, trademarks, and other intangible assets. While these assets can't be seen or touched, they provide the company with a competitive advantage and significant market value.
These refer to long-term investments made by a company, such as stocks or bonds held in other companies, which are not meant to be sold in the short term.
Example: Alpha Enterprises has a robust portfolio of financial fixed assets, including significant shares in rising tech startups and bonds in established corporations. These long-term investments underscore the company's strategic approach to expanding its financial footprint and are not intended for quick turnover.
There are several reasons why fixed asset inventory is important. Here are some reasons to explore:
Accurate recording and valuation of fixed assets are essential for a company to present a true and fair view of its financial health in balance sheets.
Depreciation of fixed assets affects the tax liabilities of a company. Proper inventory ensures correct calculation of depreciation and accurate tax returns.
An updated inventory helps businesses track the condition and performance of their assets, aiding in timely maintenance and replacement decisions.
Knowing the exact number and value of fixed assets helps companies ensure they are adequately insured, protecting them from potential losses.
Use our 10-step fixed asset inventory process to effectively ensure your inventory’s accuracy. Simply follow the steps below:
Define criteria for assets, set depreciation methods, and establish procedures for acquisitions and disposals.
Example: A company noticed inconsistencies in the way assets were accounted for which prompted the finance team to define clear criteria for which items qualified as fixed assets and to determine suitable depreciation methods for each category. Once established, they ensured that protocols for acquisitions and disposals were clearly communicated across departments.
Use an asset management software with barcoding or RFID technology like Asset Panda.
Example: The IT department at a local school implemented Asset Panda, a software equipped with barcoding, which allowed them to efficiently keep track of every computer, projector, and piece of equipment throughout the campus.
Ensure relevant staff are trained on the importance of asset tracking and how to use the system.
Example: After adopting a new asset management system, ABC Corp held a workshop where all staff responsible for asset management learned about the significance of accurate tracking and received hands-on training to navigate and use the system effectively.
Assign unique, durable asset tags to each acquired asset promptly.
Example: When XYZ Enterprises received a new batch of machinery, the operations team immediately affixed durable, unique asset tags to ensure that each piece of equipment could be easily identified and tracked within the system.
Schedule and compare physical counts with recorded inventory, and reconcile discrepancies.
Example: Every quarter, the facilities team at a manufacturing plant physically counts every item in their inventory. They then compare this count to the electronic records to address any mismatches and updating as needed.
Promptly update records for acquisitions, relocations, and disposals, and keep detailed asset information.
Example: Upon relocating several office chairs to a different floor, the admin staff at a corporate office promptly updated the system to reflect the change to ensure that every asset's current status and location was always up to date.
For movable assets, track who has the asset and its purpose.
Example: A camera rental shop uses a system that logs the details of every customer renting equipment, along with the intended use and return date to ensure they always know where each item is and prevent potential losses.
Document and remove retired or disposed assets from the register.
Example: When the old printers at DEF Tech were replaced with newer models, they documented the retirement of the old assets to ensure they were correctly removed from the asset register and disposed of according to the company's sustainability standards.
Match your fixed asset accounts with the general ledger regularly.
Example: At the end of each month, the accounting team at GHI Inc. compares their fixed asset account balances with entries in the general ledger to ensure that there are no discrepancies and that the financial statements reflect the true value of the company's assets.
Store purchase orders, invoices, and disposal documents for reference and verification.
Example: Every time LMN Retailers acquire a new asset, they file away the relevant purchase orders and invoices in a designated folder. This systematic storage ensures that, in case of an audit or a query, they can quickly provide verification for every asset on their books.
TechHaven Ltd is a leading tech solutions provider with a reputation for state-of-the-art office infrastructure. It has expanded its operations across multiple locations over the past decade. As their asset portfolio grew, ensuring precise inventory management became paramount; here's how they employed our process to maintain impeccable accuracy in their fixed asset inventory:
TechHaven Ltd. formulated a policy outlining that any equipment costing over $500 would be considered a fixed asset and would be depreciated over 5 years using the straight-line method.
TechHaven adopted the "AssetPanda" software to utilize for barcode scanning to manage its array of office computers and equipment.
All the department managers at TechHaven attended a workshop on the significance of asset tracking and learned how to use the AssetPanda system effectively.
Every time TechHaven purchases a new server, it is immediately tagged with a unique and resilient label before being deployed.
Quarterly, TechHaven’s audit team verifies the existence of assets by comparing the physical count of computers in the office to the numbers listed in the system to note any differences.
When TechHaven relocated its main office, all asset relocations were instantly recorded in the system, ensuring no asset was misplaced.
TechHaven’s laptops, used for remote work, are logged with details of which employee has borrowed them and for what duration.
After deciding to upgrade its old printers, they documented their condition, reasons for disposal, and subsequently removed them from the active asset register.
At the end of every month, TechHaven’s finance department matches the total value of fixed assets in the AssetPanda system with the balance in the general ledger.
TechHaven has a dedicated folder where all purchase orders for new assets, their corresponding invoices, and any related disposal documents are securely stored for future reference.
We hope our article has now left you with a better understanding of what fixed asset inventory is and how to ensure its accuracy for your business using our process.
If you enjoyed this article, you might also like our article to determine if inventory is an asset or expense or our article on static vs dynamic QR codes.
