Fixed assets inventory: What’s the key difference
The fixed assets inventory consists of a census of the fixed assets present in a business and the recorded fixed assets. Its purpose is to track significant discrepancies and to trace the history of fixed assets. This is a legal obligation and must be done once a year "date of closing of the financial year".
Fixed assets and inventory are very easy to be confused. So, what is the key difference between fixed assets and inventory? Discover what fixed assets inventory is, its importance, and the dissimilarity between these 2 notions in this article.
What are fixed assets?
In accounting, the term "fixed asset" refers to assets intended to serve the activity of a company in a sustainable manner. There are three categories of fixed assets:
- Financial fixed assets: these correspond to the monetary assets of a company. This concerns equity securities, loans granted directly by the company, deposits, and guarantees ...
- Tangible fixed assets: these are what a company owns and will continue to use after the end of the current financial year (land, buildings, vehicle fleet, machines, etc.)
- Intangible fixed assets: these are dematerialized assets (but which are not monetary). For example, there are patents, licenses, software, business assets, etc.
Expenses related to fixed assets (except financial fixed assets) are depreciated according to their expected useful life (which must be greater than one year). They cannot be fully deducted from the company's income when they are acquired.
What is inventory?
The inventory is the act by which we identify all the movable and immovable property of an individual, a trade, or a company. Inventory is very important when economic activity includes stock. Throughout the operating cycle, an accounting of the inflow and outflow of stocks is updated.
However, it is common for annual inventory to reveal a difference between daily bookkeeping and manual counting of goods. When the inventory shows a negative difference from the results displayed on inventory management, the deficit is written off as an operating loss.
What are the different types of inventories?
- Heritage inventories bring together the naturalistic inventories accumulated by learned societies and natural history museums and contribute to national inventories. The process exists in the cultural heritage but also in the case of libraries, archives, and documentation centers.
- The cash inventory consists of tracking all the operations entered in the cash journal while the inventory of fixed assets takes place at the end of the accounting year and concerns all financial and material fixed assets.
- Finally, the inventory of stocks includes raw materials, goods, finished products, and products in the process. These are all products that we can’t sell and it must be done at least once a year.
What are fixed assets inventory important?
The objective of a fixed assets inventory is to draw up in an exhaustive and detailed manner the real situation, but also the financial situation of the fixed assets of a company with their transferable securities, during an accounting period. If the dashboard is a tool that helps you to indicate the performance of a company, the inventory is a tool for monitoring and controlling the assets of the latter.
It concerns all goods which are recorded as material fixed assets (equipment, installations and fittings, buildings, and land) and as intangible fixed assets or financial fixed assets (equity securities, fixed assets, etc.).
What is the difference between fixed assets and inventory?
A fixed asset is a material, nonphysical, or financial good, of a certain value, that the company owns and intends to use for a period of more than one year, while inventory is the goods that you use to create it.
Fixed assets correspond to assets intended to be used in a sustainable manner for the activity of the company. Fixed assets are grouped into 3 main categories: dematerialized fixed assets, tangible fixed assets, and financial fixed assets. These costs are not immediately deducted from the company's results and are reduced according to their useful life. This is an article presenting fixed assets and depreciation, other articles examine each of these points in more detail.
With inventory, you determine the current composition of your assets and debts. All the assets (and all debts) of a business should be listed. The purpose of this procedure is to determine the actual inventory. Merchants and contractors should have regularly determined what is in their warehouses using their commodity management systems.
How to carry out a fixed assets inventory solution?
The first step in an inventory is to physically identify the items present in the business "for those belonging to it" and to reconcile them with the fixed assets register transmitted by your accounting firm.
These elements are classified into three blocks:
- Material assets (building, machine, furniture, etc.)
- Intangible assets (goodwill, entry fee, etc.)
- Financial assets (Guarantee, equity securities, etc.)
For example, during the past year, you have renewed your "4 computers" park. The old computer park had been acquired in 2019. At this time, the changed material is obsolete, and cannot be resold. It will be released for an amount of $ 0 and scrapped because destroyed.
From an accounting perspective, the firm will proceed with the exit of acquisitions made in 2019 and the entry of 2021 acquisitions following the inventory that you have communicated to it. Without the transmission of the new 2020 inventory, the firm will count 4 new computers in the company's assets without removing the 4 old ones. Your balance sheet will therefore show a park of 8 computers instead of 4.
In order to ensure the correct information is given to readers, and to respect the principle of the faithful image of the balance sheet, you must make sure to effectuate the fixed assets inventory each year.
In conclusion, when the need for an accurate inventory of fixed assets has been established, whether the use of a specialized company has been recorded or not, it is time to get down to carrying out the inventory itself. When effectuating an inventory of its fixed assets, it is necessary to respect a certain organization and to maintain methodological rigor. Whether the inventory is carried out internally or entrusted to an external firm, respecting a few basic rules is one of the keys to the success of the fixed asset inventory project.