Reconciliations are an important part of determining and following money trails of a organization. In short, a reconciliation is the process of bringing together two separate sets of data and ensuring the data is accurate and agrees with one another. In accounting there are various types of reconciliations that can be performed; one being a reconciling your fixed assets. It is important for a organization to have an accurate record of fixed assets as it allows for them to make appropriate business decisions and prevents them from being over assessed. Performing a fixed asset reconciliation on a regular basis ensures not only the accuracy but the existence of the assets that are reported on the balance sheet.
Reconciling your fixed assets allows you, at a minimum, to address the following:
- Has depreciation been appropriately recorded?
- Are all additions justified and have all additions been accounted for?
- Have all disposals been properly booked?
- Are the assets reflecting the proper value at year end?
- Are any assets being over depreciated?
Your organization may keep track of fixed asset through a fixed asset software or even through Excel. However, a listing which may maintain the process across organizations does not typically differ much. Below, in brief, are the steps that are taken when performing a reconciliation of fixed assets.
- Close the balances of prior year fixed assets and ensure these balances are accurately rolled forward.
- Ensure your listing of additions and disposals for the current year are accurate and complete. These amounts should be verified and crossed checked through supporting documentation.
- Review assets useful lives and determine whether any revisions need to be made.
- Review current year depreciation calculations to ensure proper updates occurred with prior additions or fully depreciated assets.
- Determine whether there has been an impairment of any assets to prevent inaccurate valuation of an asset.
- Complete verification of all accounts and balances, compare the end balances to the balance per the books/accounting ledger to ensure they agree. If your balances do not agree you will need to locate where the error has occurred to adjust the amounts accordingly.
It is also important to note that the most reliable way to validate and verify the existence of fixed assets is by conducting a physical inventory. By performing a physical inventory, it will allow for an informed decision when reviewing the useful lives and determining if any assets have been impaired. By performing a fixed asset reconciliation on a regular basis, which will vary from organization to organization, this provides the organization with the most accurate data to base decisions.
If you have any questions, please contact your Henry+Horne advisor.