How to Select the Right Fixed Asset Method and Tool for Depreciation

Posted on 1st Nov 2018

Article By: Rich Shank

Depreciation. It’s something every business must tackle as part of its accounting function. Separate from the cash expended, depreciation represents the benefit used up from the asset over time to help match up the revenue with expenses.

It provides valuable information to decision makers when evaluating profitability of their departments. It provides the government with a tool to spur investment into tangible property and a basis to levy taxes. It is also a source of a lot of frustration for many users, novice and expert alike.

There are three common methods to keep track of fixed assets. Like any tool, it is important to select the right one for the job at hand. You would not use a hammer to swat a fly; it’s the same with depreciation calculations.

1.  A Manual System with Good Old Fashioned Pencil, Paper and a Calculator

This is the least flexible and is difficult to use once the number of fixed assets increases.

It is also the least expensive, and if your needs are relatively simple (perhaps a handful of assets), then this option could make sense.

2.  Excel or Another Spreadsheet Software Program

This is a step up from the manual system and allows for automatic calculations using built-in formulas.

The spreadsheet is a powerful tool, but it was not tailored to the needs of fixed assets and is prone to mistakes due to user error. Just like any other spreadsheet you are familiar with, one simple mistake throws the whole thing off.

3.  Specialty Software Packages for Fixed Assets

There are specialty software packages that manage the life cycle of an organization’s fixed assets, from acquisition to transfer and disposal. These programs often have built-in fixed asset reports and offer dozens of depreciation methods.

There are many accounting packages that include fixed assets as a module and integrate with the overall accounting software system. While this option makes everything much more reliable, there is a financial cost and a learning curve to overcome, just like with any new piece of software. Deciding which option is right for you is something you should discuss with your accountant.

How to Decide Which System for Tracking Depreciation is Right for You

With such a variety of methods to choose from, it can be tough to know which one is right for you and your business.

As you evaluate your options for keeping track of depreciation in your business, it’s a good idea to be aware of some factors that could impact your decision.