Fixed Asset Register: 6 Things to Settle Before Year-End

Fixed Asset Register: 6 Things to Settle Before Year-End

A fixed asset register is the running list of equipment, vehicles, furniture and other long-lived items a business owns, with what each cost and when it was bought. It usually breaks quietly. A laptop is expensed in one month, a truck is capitalized in another, and by December no one can say what the company owns.

The six items below are decisions to make before the year closes. They are a checklist, not a ranking.

System Six, a Seattle bookkeeping and fractional CFO firm, is the one firm written up here. System Six is a vetted Sam's List member and a paying member of our featured program; payment does not buy the language we use or its reviews. The full method is in how we picked this firm at the end.

1. Write Down a Capitalization Policy and a Threshold

A capitalization policy says when a purchase becomes an asset on the balance sheet and when it is simply an expense. Without one, the same $1,800 printer is capitalized by one bookkeeper and expensed by the next.

Pick a dollar threshold, write it on one page, and state how it applies to groups of items bought together, such as ten identical monitors. Add a line for repairs versus improvements, since an improvement that extends an asset's life is generally treated differently from routine maintenance.

Keep the book threshold separate from tax rules. The IRS has its own safe harbors and expensing options, and the figures change, so check current IRS figures and ask your tax preparer rather than copying a number from an old article.

The limitation: a threshold that is too low buries the register in small items, and one that is too high can leave real equipment off it. Revisit it when the business grows.

2. Decide What the Fixed Asset Register Holds and Who Maintains It

A useful fixed asset register has a few fields per item: a description, a tag or serial number, the purchase date, the cost, the location, the useful life, the depreciation method and the status. Add the vendor and invoice reference, so anyone can find the support.

Then name one owner. Someone must add items when they are bought, and that person is usually the bookkeeper or controller working from the purchase approvals. If everyone can edit the register and no one is responsible for it, it drifts.

Decide where it lives, too. A spreadsheet works for a small number of assets if it has version control and one editor. Accounting software with a fixed asset module can help once the list grows.

The limitation: more fields mean more upkeep. A register no one updates is worse than a short one that is current, so keep only the fields you will maintain.

3. Keep the Depreciation Schedule for Books and for Tax Separate

A depreciation schedule spreads an asset's cost over its useful life. The trap is that the books and the tax return often use different methods and lives. Financial statements commonly use straight-line over an estimated useful life. Tax depreciation generally follows IRS rules, which can allow faster write-offs for some assets.

Keep two columns, or two schedules, for each asset: one for book depreciation and one for tax. The difference between them is a timing difference your tax preparer tracks, and it is a common reason the books and the return do not match.

Write down the useful life by asset class in your policy, such as computers or vehicles, so the book side is consistent from year to year.

The limitation: tax depreciation rules, including bonus depreciation and expensing options, change with legislation. Do not assume last year's treatment applies this year. Check current rules with your CPA before you buy.

4. Record Disposals and Write-Offs the Month They Happen

Disposals and write-offs are the most commonly missed entries. A machine is sold, a laptop is stolen, a vehicle is traded in, and the register still lists it. The business keeps depreciating something it no longer owns.

For each disposal, record the date, the proceeds if any, the item's remaining book value and the gain or loss. Keep the paperwork, such as the bill of sale or the police report. A trade-in is a sale plus a purchase and should be recorded as both.

Make it a habit for the person who approves the disposal to tell the register owner the same week. A short disposal form with the tag number, date and reason helps.

The limitation: the gain or loss on a sale can have tax consequences that differ from the book entry, including recapture of earlier depreciation in some cases. Ask your tax preparer before you sell something large.

5. Reconcile the Fixed Asset Register to the Balance Sheet

The register and the general ledger should agree. Total cost in the register should match the fixed asset accounts on the balance sheet, and total accumulated depreciation should match its account. Do this monthly if you can and quarterly at the least.

When they differ, find out why before you adjust anything. Common causes are an asset recorded in the ledger but not the register, a disposal entered in one place, and depreciation posted twice. Write each difference and its fix in a short note, so next quarter starts clean.

A reconciliation done only in December is harder, because twelve months of small errors are stacked together.

The limitation: a reconciliation shows that two records agree, not that either is right. An asset can be on both lists and no longer exist, which is why the next step matters.

6. Spot Check the Register at Year-End and Hand It to the Tax Preparer

Before the books close, pick a sample of items and confirm they exist. Walk to the location, find the tag, and match the serial number. Start with high-value and portable items, such as laptops and tools, since those are the ones that disappear. Note anything missing and record the write-off.

Then give your tax preparer a clean package: the register with the book and tax columns, the year's additions and disposals, and the support for large purchases. Tell them about assets placed in service late in the year, since timing can affect the first year of depreciation.

Ask what they need in what format. A file that arrives in the shape they use saves everyone time.

The limitation: a spot check is a sample, not an audit. It catches patterns, not every missing item. A larger business with many assets may need a full count.

Where System Six Fits

System Six is a bookkeeping and fractional CFO firm based in Seattle. It was founded in 2009, has about 41 employees and serves clients nationwide. Its live profile lists Non-Profit Organizations, Professional Service Firms and Real Estate Investors as specialties, and says it serves small businesses generating between $1 million and $10 million of revenue.

System Six is early in building a review history on Sam's List, so we do not cite a review count and describe the firm by what its profile says instead.

The limitation, plainly: the profile lists a $1 million revenue minimum, so a smaller company may fall outside what the firm takes on. It does not describe fixed asset accounting by name, so ask what a register review includes, who maintains it and how it hands off to your tax preparer.

Frequently Asked Questions

What is a fixed asset register?

It is a list of the long-lived items a business owns, with cost, purchase date, useful life, depreciation and status for each. It supports the balance sheet and the depreciation on the tax return. It works best when one person maintains it and it is reconciled to the ledger regularly.

What should a capitalization policy include?

A dollar threshold, a rule for grouped purchases, a distinction between repairs and improvements, and useful lives by asset class. Keep it to a page and have the owner sign off. Your tax rules may differ from your book policy, so check current IRS figures with your CPA.

What is the difference between book and tax depreciation?

Book depreciation spreads cost over an estimated useful life for financial statements, often straight-line. Tax depreciation generally follows IRS rules and may allow faster deductions for some assets. The two can differ, so keep both in your depreciation schedule and let your tax preparer track the gap.

How do I handle disposals and write-offs?

Record the date, proceeds, remaining book value and the gain or loss, and remove the item from the register. Keep the support, such as a bill of sale. The tax treatment can differ from the book entry, so ask your preparer before selling a large asset.

Before year-end, ask whoever keeps your books for the register and compare its total to your balance sheet. You can browse fractional CFOs on Sam's List, including System Six, and ask each one how it maintains a register.

How We Picked This Firm

You should be able to check our work, so here is how this post was built.

The pool. The pool is the vetted Sam's List members in our featured program with live public profiles that describe fractional CFO services. This is not a survey of every firm that maintains fixed asset registers, and many Sam's List members and other firms not written up here could fit.

How it is organized. The six items are a checklist to work through, not a ranking. System Six is the only firm written up, so there is no order of firms.

What review counts mean here. System Six has too few reviews on Sam's List for a count to mean much, so we do not cite one. A count shows how many clients wrote something down, not technical quality.

What payment does and does not buy. Listing on Sam's List is free, and so is being named in this article. The firm written up here is a paying member of our featured program, which is why it gets a write-up. What payment does not buy is the language we use about a firm, its review count, or a promise that it fits you.

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About the author: Kimberly Green is the cofounder of Sam's List, where business owners and high earners find vetted CPAs, financial advisors, and fractional CFOs. She's met one-on-one with 400+ financial professionals and writes from the real data behind thousands of client-advisor matches. Ask her anything about finding an accountant - she's heard it all, including the questions people are afraid to ask.