This article is to help you understand the meaning of asset accounting.
Let’s first understand what is asset
The item which has an economic value and is expected to provide benefit in future periods.
Assets in an organization can broadly be divided into two categories
Asset which can convert into cash or be consumed within one year is referred as current asset.
Long term asset or fixed asset:
Assets which are not expected to be converted into cash or consumed within a year are called long term asset. Benefit of such asset goes beyond one year.
What is asset accounting?
Every company has to report current asset and fixed asset in its balance sheet. Hence company needs to record all the transactions of the asset.
Some of the transaction involving asset is listed below:
Asset can be acquired (purchased from vendor or build in house)
Asset depreciation/ amortization:
Asset can be put to use and hence economic value of asset should reduce. The amount by which asset value is reduced is called depreciation (in case of tangible asset) and amortization (in case of intangible asset.)
Net book value = acquisition value – total depreciation amount
Asset can be transferred from one department to another department, from one plant to another plant, from one company code to another company code etc.
Asset can be sold to customer for certain amount.
Asset which is no longer of use can be discarded or scraped.
Whenever asset transaction happens, recording and reporting of transaction along with financial impact (accounting document) is referred as asset accounting.