Every organization owns buildings, IT equipment (computers, laptops, printers, etc.), and similar assets that add more value to the business. These assets need constant management and tracking to assess if they are being utilized properly. But that’s not all. Depreciation is an essential part of asset tracking as well. It gives you the full scope of asset utilization and organizational expense, projecting a picture-perfect representation of the company’s financial health and progress.
In this blog, we will explore how tracking depreciation on balance sheet accounting is beneficial for organizations. Additionally, how an asset management system can streamline the process.
Why tracking asset depreciation is important for businesses?
Tangible assets lose their worth over time, even when they add value to the business and generate income. Depreciation indicates how much of an asset’s value has been used by the organization over its useful lifespan.
Significance for businesses:
It allows businesses to report an asset’s exact net book value. In most cases, only the cost of an asset is reported, while it continues to lose value due to daily usage over time. Companies can deduct overall asset depreciation expense from the original purchase cost and determine net book value.
Depreciation is tax deductible. If an asset has higher depreciation expense, it lowers taxable income, increasing tax savings.
Lack of depreciation can cause over or under-stating of total asset expense, generating inaccurate financial information.
To summarize, tracking asset depreciation allows businesses to make more informed financial decisions and prevent unnecessary expenses.
How can you track asset depreciation?
You can track your asset depreciation through:
Income statements
Balance sheet accounting
When listed on the income statement as an expense, asset depreciation is recorded for a particular income period.
Balance sheet accounting, on the other hand, gives you total visibility of the asset depreciation since you acquired/purchased it.
Benefits of tracking depreciation via balance sheet accounting:
Reviewing income statements gives you either a monthly or quarterly breakdown of what’s happening with the assets. Using this information, you can develop strategies to generate revenue during that time period. However, balance sheet accounting gives you the overall picture of:
How are your fixed assets depreciating?
How much revenue have you been generating from them since purchase?
Insights from balance sheet accounting help businesses develop better financial strategies for long-term growth, while streamlining asset management.
That’s why tracking accumulated depreciation on balance sheet is preferable. Once the balance sheet is setup, you can focus on the overall financial state of your organization. Such as;
What is the net value of your company over time?
Which asset needs more maintenance than others?
Are you paying for assets that have exceeded their lifespan?
Calculating the estimated value of your assets over time will help determine the net value of your business. If there is a gradual decline in net value, you can prioritize profit-generating actions to prevent that. Since the company balance sheet presents an overall status of the assets, you know which assets require maintenance and ones that have exceeded their lifespan. If a certain asset is costing you thousands in maintenance, you can replace it with an affordable alternative.
Can Asset Management Software help with depreciation tracking?
Keeping everything tracked and updated in one place helps you foresee business growth. You get a better understanding of where the business assets stand by calculating accumulated depreciation on balance sheets.
Streamlining the asset management process through an integrated system prevents major problems and keeps business assets organized and managed. It also ensures your business is taking into account the depreciation of your assets in the company's accounting practices.
The best part, it prevents ghost and zombie assets from causing;
Inventory inaccuracies
Asset shortages
Overpayment of insurance and taxes
An asset management system offers accountability, accuracy, and efficiency. It allows businesses to track an asset through its entire lifecycle from purchase to its removal from your inventory. This will help in cutting down ghost and zombie assets, as they track and manage the depreciation schedule.
AdminRemix is happy to help with your asset management needs. Our integrated platform AssetRemix will manage all aspects of asset tracking, including depreciation, which directly impacts your profits. Get a free consultation from our experts and book a demo today.
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