Accounting technology / Glossary / Fixed asset accounting

What is fixed asset accounting?

Definition

Fixed asset accounting is the recording of a business's long-lived assets, such as buildings, machinery, vehicles and computer equipment, from purchase to disposal. It decides which purchases are capitalised rather than expensed, keeps each asset in a fixed asset register, posts depreciation every period and records any impairment, revaluation or sale.

Also calledfixed asset managementPP&E accountingcapital asset accounting

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Key record: Fixed asset register
Standards: IAS 16 (IFRS), ASC 360 (US GAAP)
Books kept: Accounting and tax, separately

How fixed asset accounting works

A purchase is capitalised when it will be used for more than a year and costs more than the company's capitalisation threshold; cheaper items are expensed. The fixed asset register lists each asset with its cost, date, location, useful life, depreciation method and accumulated depreciation, and its total must agree to the fixed asset accounts in the general ledger. Each period the system calculates and posts depreciation. Assets are checked for impairment when there is a sign their value has fallen, and on sale or scrapping the cost and accumulated depreciation are removed and a gain or loss recorded. IAS 16 under IFRS, and ASC 360 under US GAAP, set the rules for property, plant and equipment; IFRS also allows a revaluation model. Tax depreciation is usually tracked in a separate book, because tax allowances differ from accounting depreciation.

Common questions

What is a capitalisation threshold?+

The minimum cost at which a purchase is recorded as a fixed asset rather than an expense. Each company sets its own, so that small items such as a keyboard are not depreciated over several years.

What is a fixed asset register?+

The list of every fixed asset the business owns, with cost, purchase date, location, useful life, depreciation to date and net book value. It supports the balance sheet and physical asset checks.

What happens when a fixed asset is sold?+

Its cost and accumulated depreciation are removed from the books. The difference between the sale proceeds and the net book value is recorded as a gain or loss on disposal.