Continuing the Journey Through General Ledger Excellence
In the previous edition of our General Ledger Understanding series, we took a closer look at Payroll Accounting and Reconciliation, emphasizing how accurate salary and deduction entries are critical to reliable financial statements.
Now, we move to another cornerstone of General Ledger management – Fixed Asset Accounting and Depreciation, along with the reconciliation processes that ensure the reliability and audit-readiness of financial records. At Right Path Global Services Pvt. Ltd., we believe that how you manage your assets says a lot about how you manage your business.
What is Fixed Asset Accounting? And Why It Matters
Fixed Asset Accounting refers to the structured process of tracking and managing a company’s long-term tangible assets such as buildings, machinery, computers, and vehicles – assets that support operations and add value over time.
When managed effectively, fixed asset accounting helps organizations :
- Accurately reflect asset value in financial reports
- Ensure compliance with tax and statutory norms
- Make better decisions on capital planning, replacement, or disposal
Key Activities in Fixed Asset Accounting
Let’s look at the core functions involved in this critical area:
1. Asset Capitalization
This marks the beginning of the asset’s accounting journey. Capitalization ensures that only qualifying expenditures (like asset purchase or installation) are recorded as fixed assets, rather than being mistakenly expensed.
2. Asset Categorization
Assets are classified based on type – machinery, IT equipment, vehicles, buildings, etc. to apply relevant depreciation methods and reporting rules.
3. Maintaining the Fixed Asset Register
This central ledger contains all relevant data for each asset: acquisition cost, date of purchase, depreciation method, useful life, and current book value.
4. Fixed Asset Movement/Transfer
As assets move between departments, locations, or business units, their records are updated to ensure traceability and alignment between physical usage and financial ownership.
Depreciation Accounting: Capturing Asset Wear and Value Over Time
Depreciation isn’t just a technical requirement – it’s a financial truth. All tangible assets lose value over time, and this needs to be captured systematically to reflect accurate financial health.
Here’s how Right Path approaches depreciation management:
1. Method Selection and Calculation
Depending on the organization’s policy and asset type, either the Straight-Line Method (SLM) or Written Down Value (WDV) method is applied. These methods determine how the asset’s cost is spread over its useful life.
2. Posting Depreciation
At regular intervals – monthly, quarterly, or annually – depreciation is posted into the General Ledger to reflect the asset’s reduced value and associated expense.
3. Adjustments for Additions or Disposals
Whether new components are added to existing assets or an asset is sold or scrapped, depreciation entries are recalculated to ensure financial accuracy.
Fixed Asset and Depreciation Reconciliation: Trust, Verified
Reconciliation ensures what’s on the books matches what’s on the ground- and what’s actually in use. Here’s how we make it bulletproof:
1. Fixed Assets vs. General Ledger
We ensure that balances in the Fixed Asset Register are fully aligned with GL account totals, minimizing discrepancies before audit time.
2. Physical Verification
Physical audits are conducted to confirm asset existence and condition. Any losses or unrecorded disposals are adjusted accordingly.
3. WIP (Work in Progress) Reconciliation
Assets under construction must be tracked separately and capitalized only upon completion. We help clients reconcile WIP items to prevent premature capitalization.
4. Asset Disposal and Sale Reconciliation
When an asset is sold or scrapped, all related entries – accumulated depreciation, proceeds, and gain/loss – are reconciled to ensure transparent reporting.
5. Audit Readiness
Reconciliation, documentation, and trail records are all maintained with a focus on audit preparation, giving finance leaders peace of mind during external reviews.
Conclusion: Building Long-Term Confidence Through Asset Clarity
Fixed assets represent long-term value – and managing them well speaks volumes about a company’s operational maturity. From acquisition to disposal, and from depreciation to reconciliation, every step needs to be meticulous and audit-proof.
At Right, we enable businesses to build robust asset accounting systems that support regulatory compliance, enhance financial planning, and drive long-term value creation.
