Finance

Using fixed asset software can save you money come tax time, or even in the everyday routine. It can save money because it cuts down on organizational time. As many accountants charge by the hour, he or she will charge a company less money if less time is involved with preparing a return.

Think of the difference between handing over a bunch of hardcopy that needs to be sifted through by an accountant, or well-organized records that can even be forwarded via email. An accountant can point and click to relevant information, and so a tax return can be organized in a shorter amount of time. This is only one consideration for using fixed asset software but it bears mentioning.

Becoming Your Own Accountant
The real benefit of using fixed asset software is not only about the April 15th deadline. The software enables a company to have a full-time virtual accountant. Many companies do not have an on-site accountant but rather use the service when it is needed. However, accounting issues are a daily concern so a business needs a way to deal with accounting issues on an everyday basis.

This is especially important for small businesses that cannot afford to hire an accountant full time, or even regularly. Fixed asset software will be able to organize assets, determine depreciation, and even help a business make long-term business projections. These are vital resources for a successful business.

Fixed asset programs should offer a number of features. Mainly, the program should be user-friendly. Being that the program deals with such a breadth of information, this is not always the case with fixed asset programs. The whole point of a program is to make your life easier, so if it has a poorly-designed interface it is not doing its job.

Weve lived with computers for so long that we take for granted how useful they can be. If you took fixed asset software back in time 20 years ago, financial managers would be amazed at the functionality of the program–it cuts down on both time and money. While fixed asset software cannot take the place of an accountant, it can help dramatically with accounting procedures.

Fixed Asset Functionality
Any good fixed asset program should not only offer the ability to manage assets, but provide a complete history as well as future projections. Historical reports will tell you if the projections were accurate. If the projections were not what you envisioned, perhaps it is time to explore a different business model.

It sounds fantastical, but a good fixed asset program can actually make you money. It can potentially recover lost deductions and help reduce property tax payments. Either one will be a boon to your business–using the software it is possible to achieve both. In addition, the time saved from using the software is time that can be spent on other pressing issues.

A fixed asset is an asset that is intended for continual use, as opposed to a temporary asset such as a stock. Fixed assets fall under three different categories: tangible, intangible, and investments. The most common fixed assets are tangible assets. These include land and buildings, machinery, computers, and other permanent holdings.

An intangible asset refers to assets such as trademarks or patents. While stocks fluctuate their worth over time, a fixed asset generally deteriorates with time. Think of computers. They generally go down in value as technology gets better and old computers become obsolete. This lowering in value is called fixed asset depreciation.

Factory machinery, on the other hand, may last a very long time. So the rate of fixed asset depreciation has to be factored in any businesss overall business plan–both yearly and a long-range model. At the end of the current year, fixed assets may be worth roughly the same as they are worth today. However, assets may be worth much less 10 years down the line, so this must be factored into a future projection.

Factoring in Depreciation
This is not a disaster in the making, just a fact of running any business. As time goes on, assets may depreciate in value, but a business should be bringing in more of a profit, covering the difference. When writing out financial reports–either internal or tax returns–depreciation must be factored in.

The rate of depreciation is determined by factoring in the cost of the fixed asset, the estimated life of the asset, and the residual value of the asset. Ill go through these one by one. By the end, youll realize the need for software to calculate the litany of factors that can affect fixed asset depreciation.

You have to keep in mind that every business does not just have one fixed asset, but several–if not thousands. In fact, the depreciation of one asset can affect the value of another–for instance, in a factory which has machinery with several different components which have varying degrees of depreciation. A software program is enormously helpful to organize all of your assets.

Calculating Cost
The costs of fixed assets include issues such as delivery cost, set-up costs, maintenance costs, and other things of that sort–costs that keep the fixed asset up and running. Other issues such as legal fees or insurance also factor into an assets overall cost. Keep in mind that maintenance does not factor into value–however, improvements and upgrades do.

The estimated life of an asset is core to determining its depreciation rate. This falls into two areas: the physical life and the economic life. When determining depreciation, the economic life is most important–the rate at which an asset is still financially viable. Finally, the residual value is the amount that a business can make by selling off an asset. If it has reached the end of its physical life, this can be a wash.

The terminology regarding fixed assets can be confusing because a fixed asset does not actually stay fixed at the same value–it depreciates over time. In addition, theres a difference between current assets and fixed assets. A current asset is much more easy to calculate–they are assets which are sold off and quickly liquidated. Stock holdings fall under current assets.

Calculating Depreciation
The depreciation of an asset is not a simple matter. It is one of the major reasons to get a depreciation software program, or to dump it all on the desk of an accountant. If youre ready for the nuts and bolts, here it goes. A fixed asset depreciation is measured using this calculation: Dpn = (C- R)/ N.

I can hear sighs of Huh? This is the calculation for straight line depreciation, the most common calculation. In the equation, C is the cost of the asset, R is the residual value (how much its worth after it is sold off), and N is the number of years that the asset is going to last.

When you factor in the number of assets in a typical business, it just doesnt make sense to make all these calculations manually. Yes, you will have to manually plug in information into a depreciation calculator, but there is much less room for error than if you were to divide and conquer the equations yourself. A huge problem can unfold if you forget to carry the one. Instead, use a software program and eliminate any issues with human error.