Fixed asset accounting tracks long-lived resources and spreads their cost over useful life. Learn capitalization policies, depreciation methods, and audits.
Fixed assets—property, equipment, software, and leasehold improvements—represent significant capital investment. Proper capitalization and depreciation policies match expenses to the periods that benefit from the asset while keeping the balance sheet accurate.
Capitalization Thresholds and Policies
Define what qualifies as a capital asset versus an immediate expense. Thresholds often range from a few hundred to a few thousand dollars depending on company size and materiality.
Policies should cover repairs vs improvements, internal labor capitalization, and software development costs under relevant guidance.
Depreciation Methods
Straight-line depreciation spreads cost evenly over useful life—the most common method for financial reporting. Accelerated methods front-load expense for tax or specific industries.
Assign reasonable useful lives and salvage values by asset class. Document assumptions for auditor review.
- Straight-line: equal expense each period
- Declining balance: higher early-year expense
- Units of production: tied to usage or output
- Component depreciation for complex assets
Asset Register and Controls
Maintain a fixed asset register with acquisition date, cost basis, location, custodian, and depreciation schedule. Physical inventories verify assets still exist and are in use.
Disposals, impairments, and transfers should update both the register and general ledger promptly.
Leases and Intangibles
Right-of-use assets from leases follow separate recognition and amortization rules under modern lease standards. Intangible assets such as patents and acquired software may amortize over legal or economic life.
Coordinate with tax advisors on bonus depreciation and Section deductions where applicable.
Key Takeaways
- Publish clear capitalization thresholds and asset categories
- Use consistent depreciation methods and documented useful lives
- Keep an accurate asset register with periodic physical verification
- Handle disposals, impairments, and lease assets with dedicated workflows