Proper accounting of assets is essential to a company's financial reporting. In accordance with generally accepted accounting principles, or GAAP, a company reports all assets on its balance sheet. The balance sheet is a listing of the company's assets and liabilities. One of the most common types of assets is fixed assets. Fixed assets are assets a company holds for a long period of time, such as buildings, land and equipment.
Account for all of your fixed assets. An asset is considered fixed when it sustains value over a number of years. Examples include buildings, machinery and equipment. Compile a list of all assets that you own.
Assign a value to the fixed assets. According to the cost assumption under GAAP, report the value of the asset as the cost at which it was purchased.
Determine a method to assess depreciation. Fixed assets lose value over a period of time known as the useful life of the asset. For straight-line depreciation, continue to Step 4. For reducing balance depreciation, skip ahead to to Step 5.
Calculate straight line depreciation by dividing the cost of the asset by its useful life. For example, you buy a truck at $30,000 with a useful life of seven years. 30,000 divided by seven equals 4,286. This means the truck will decrease in value by $4,286 every year. After one year of owning the truck, you report the asset at a value of $25,714. Skip ahead to Step 6.
Calculate reducing balance depreciation by calculating the percentage of depreciation each year. For example, you buy a truck at $30,000. One year after you buy the truck, you appraise it at $27,000. Divide 27,000 by 30,000. The truck is at 90 percent of its value after year one, meaning it decreases in value 10 percent each year, giving it a useful life of 10 years. After two years of owning the truck, you report the asset at $24,000, or 80 percent of its value.
Apply the decided depreciation method to the cost of the asset based on how far into its useful life the asset is. Report this figure onto the balance sheet to account for the asset in accordance with GAAP.
- About the GAAP Capitalization Threshold
- Accounting Definition of Fixed Asset
- How to Account for Assets in a Nonprofit
- What Costs Get Capitalized for Fixed Assets?
- The GAAP Accounting Fixed Assets Rules
- What Are the Criteria for Capitalization of Fixed Assets?
- What Are the GAAP Guidelines to Capitalize Assets?
- What Are the GAAP Rules for Depreciation?
- Fixed Asset Accounting Rules