Depreciation and Balance Sheet Accounting

Depreciation and Balance Sheet Accounting

Income statement, balance sheet, cash flow statement, and the statement of owners' equity. Even all together, they cannot provide a picture perfect representation of a company's financial health and progress.

Built into many of the items of these statements are assumptions.

If items are changed, can have effects on the bottom line or apparent health. Effects that can have greater or lesser change either positively or negatively. Depreciation is one of these assumptions that can impact the value of long-term assets and by which can affect short-term earnings results. Tracking your depreciation should be apart of your company policies and procedures to keep up with asset worth and tax purposes as well.

If you have investors for your company, another thing to note is that not every company breaks down the book values or depreciation for investors, the assumptions they use are often discussed in the footnotes to the financial statements. This is something investors might wish to be aware of.

There are 2 types of ways to track depreciation.

In this article we are going to focus on balance sheet accounting. When it is listed on the balance sheet, it accounts for the total depreciation instead of simply what happened during the expense period. Your balance sheet will record depreciation for all of your fixed assets. This means you’ll see more overall depreciation on your balance sheet than you will on an income statement.

Tracking depreciation and balance sheet together helps you get a complete picture of how your assets are depreciating. You can see what’s happening in a month to help you make sure you bring in the right amount of income during that time period by only looking at income statements.

Once you have your balance sheet setup you can focus on the overall picture for you company.

What is the net value of your company over time? A decline can motivate you to find new profit generating aspects a priority. Is there a specific asset that is depreciating to quickly? Are you finding other assets need less maintenance than others and you can replace more costly assets with a different type?

You will learn a lot about your business from your balance sheet.

Keeping everything tracked, updated and all in one place helps keep a clear understanding and a vivid pathway to where your business a grow. You can prevent major problems by keeping your assets up to date and managed through an asset management system that will help you keep track as well.

AdminRemix is happy to help you with your Asset Management needs. Keeping your assets up to date and maintained will help keep your business running smoothly.

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