Company needs to keep track of asset throughout the lifetime of asset. At any given point of time, company should know the entire history of asset starting from asset acquisition to asset retirement.
Whenever any transaction involving asset takes place, finance department has to update the account book by posting accounting document.
Below are few examples of asset transaction and corresponding accounting document:
→Asset acquisition from external vendor
Asset of 60000 is purchased from vendor. Asset has useful life of 5 years.
Finance department has to post below accounting document.
→Asset depreciation (if linear depreciation is applied then each month asset will be depreciated by 1000)
Each month finance department has to post below accounting document.
Depreciation will happen each month, hence accounting document for depreciation needs to be posted each month.
If at any point of time, company should be able to know net book value of the asset.
→Asset sale to customer
After 6 months, asset is sold to a customer for 57000
Finance department will need to post below accounting document.
Challenges in asset accounting:
- Keeping track of assets throughout the lifetime of asset: Since company has large number of asset, keeping track of each & every single asset is required but not possible manually.
- It is not possible to manually note down the accounting impact of each & every asset transaction. Hence generation of accounting document needs to be automated.
- Organization needs to prepare financial reports (balance sheet and profit & loss statement) using multiple accounting principles. In order to be able to produce financial reports in each accounting principle, every transaction of asset needs to be recorded in all accounting principles.
Consider below example:
Group Company is in USA and subsidiary company is in India.
Then company code in India might be required to perform asset accounting as per below:
Each accounting principle may recommend a different treatment of the asset transaction. For example:
- An accounting principle might recommend linear depreciation method while other may recommend non-linear depreciation of asset.
- Different accounting principles may recommend different useful life of the same asset.
Hence managing asset in multiple accounting principles and currencies increases complexity and becomes challenging.
How sap helps in overcoming challenges in asset accounting?
- Sap enables tracking of each & every asset over the entire lifetime of asset.
Asset accounting is a separate sub module in sap which comes under main module SAP FI.
Asset is tracked in asset sub module and corresponding financial impact is recorded in finance module.
For each & every asset, asset master is created in sub module which captures information related to the asset. Asset sub module also captures asset value which gets updated whenever any transaction of the asset happens.
- With the help of sap, accounting document gets generated automatically. Hence chance of any error due to manual intervention is greatly reduced.
- Sap makes it possible to manage asset in multiple accounting principle and currency.
With the help of sap, asset accounting can be performed in multiple accounting principles and currency.