Depreciation Basics: How Asset Management Saves Corporate Cash
Tax breaks are there to be used, and with all the new software solutions on the market, it's never been easier for corporations to take full advantage of current tax incentives. Fixed asset management software can make all the difference through automation of asset depreciation. If you don’t have such a solution in place, we’re going to explain the basics behind depreciation and why automating such a task is important.
Assets (tangible or intangible) are anything a corporation possesses or controls that represents monetary value. In order for corporations to calculate the net income that results from its for-profit endeavors, accurate asset values must be ascertained and factored into net income results. Fixed assets are tangible items, like the property and equipment a business uses in its day-to-day activities. These types of assets aren't typically sold to a company's customer base; they are equipment, vehicles and other company-owned items that are used to help run the business, but lose value over time due to age and use.
Corporations receive beneficial depreciation allowances for fixed assets that decrease in value as opposed to current assets like consumer product inventories. Depreciation is the cost of the fixed asset, including the means to acquire that asset at time of purchase, minus the value expected at the time of its sale. From the time that a depreciable asset is placed in service, net costs are methodically distributed as a depreciation expense to each time period that stands to benefit from that asset's usage. Enhanced depreciation allowances are tax incentives corporations receive based on fixed assets used for the purposes of generating profit—losses are averted and money is saved.
Depending on a corporation's accounting principles, there are several methods used to calculate asset depreciation based on either time or the extent of asset use. Asset management software solutions streamline these methods. Time-based depreciation algorithms include straight line depreciation, declining-balance, units-of-production, and sum-of-years' digits methods, while usage-based depreciation mimics the activity depreciation formula, which uses automobile mileage or some other quantifiable activity indicator.
Asset management software is more cost effective compared to the huge expense involved in hiring a team of tax accountants. Easy-to-use interfaces and seamless calculations substantially reduce human error. Paperless electronic filing also saves money and speeds up the process so that a company might quickly reinvest its salvaged funds into profit-making activities or pass funds along to shareholders.
With asset depreciation software features like customizable reporting and precise record-keeping capabilities, asset tracking burdens are now a breeze.
About the Author
