This is a pretty big topic that can get complex fast, but here are the basics on what fixed assets are and how to track them in your accounting. A fixed asset is an item an organization owns, but the cost of it is spread out over time on a balance sheet. When determining these types of assets, carefully consider these two things:
1. Capitalization Policy
According to your capitalization policy, if your organization buys an item over a certain value that you have established, it will be a fixed asset.
Item over $ = Fixed Asset
If your organization decided that value was over $2,000, then every item less than $2,000 is considered a normal expense on your income statement.
2. Depreciable Life Policy
The depreciable life policy declares how many years a fixed asset can depreciate over time to spread the expense out. Depending on the type of asset—whether it’s equipment, a building, a vehicle, etc.—there are certain year requirements. But for our purposes here, we’ll use a simple example.
For example, let’s say you buy a computer that is $2,000. Its depreciable life policy is five years to spread out the expense.
To figure out your yearly depreciation for the $2,000 computer, take $2,000 and divide it by 5. With a straight-line depreciation, this equals an annual depreciation expense of $400 for that item each year.
So that’s what fixed assets are and how to track them in the accounting for your organization. For more details, check out our short videos on capitalization policies and depreciable life policies. You can also download our free eBook below.
Free eBook: Fixed Assets Management for Churches and Nonprofits
When it comes to managing, tracking, and depreciating fixed assets, such as land, furniture, vehicles, computers, or other equipment, you want to be sure your nonprofit or church is managing everything correctly. This eBook will give you a holistic understanding of what a fixed asset is and how you and your organization can track, manage, and depreciate it throughout the course of its useful life. (Don’t worry, this is going to make a lot of sense soon!)
This eBook will teach you about:
- Calculating and comparing different methods of asset depreciation
- Allocating fixed asset costs according to GAAP (generally accepted accounting principles)
- Maintaining a record of depreciation for each fixed asset
