It’s ironic that a “fixed” asset has so many moving parts. Accounting for fixed assets and capital assets, which are significant investments for organizations, might be one of the more complex aspects of an organization’s finances, especially when that organization is a family office with multiple entities, including actively managed businesses.
What makes accounting for fixed assets so complicated, and how can family office CFOs and other accounting professionals simplify it?
The challenges of accounting for fixed assets
Some family offices focus on maintaining their wealth solely through more passive investments such as real estate, publicly traded stocks and bonds. Even if a family takes part in the recent trend of combining venture capital with lending their business expertise to the startup they’re funding, they still aren’t likely to be involved in its day-to-day operations.
Then there are families who not only invest passively but also operate a family enterprise consisting of one or more active businesses. As with any holding company structure, all or some of the businesses within the family enterprise might share some departments or assets in common – the parent company might purchase equipment or supplies for multiple businesses within the enterprise, for example, as the larger organization might have the clout to negotiate better deal terms than a subsidiary would on its own.
Examples of fixed assets include factory equipment, machinery, computers, vehicles, and even real estate or artwork. Accounting for these fixed assets or any other equipment needed for the operations of a business can be tedious under the simplest of circumstances. But there isn’t much that’s simple about a family office with multiple active businesses alongside other investment types.
In these circumstances, using entry-level software when accounting for fixed assets is a complicated ordeal. For a family office with an actively managed construction enterprise among its holdings, purchasing new excavators for five companies would require logging into and out of each company’s financial database multiple times, not only to account for the purchase of the equipment but also to settle the intercompany transactions involved.
Because your entry-level accounting solution probably doesn’t come with fixed asset management software, you’ll then need to open a spreadsheet or separate application, record each excavator as a fixed asset for its respective company, calculate depreciation and create a depreciation schedule.
The complexity of calculating depreciation expense
Part of what makes accounting for fixed assets so challenging is calculating depreciation expense, which is necessary for calculating taxes. There are multiple methods by which to do this, including:
- Straight-line
- Double declining balance
- Units of production
- Sum of years digits
- The Modified Accelerated Cost Recovery System (typically used with renewable energy equipment)
The simplest of these methods is straight-line depreciation, in which an equal portion of the asset’s total cost is expensed during each year of the asset’s useful life.
Once you’ve chosen a depreciation method, you’ll need to create a depreciation schedule for each asset. Because this information isn’t likely to be housed with the rest of your family office’s financial data if you’re using entry-level accounting software, you’ll need to remember to pull the fixed asset data when you calculate taxes or compile financial reports. You’ll also need to update the depreciation schedule regularly.
How to make accounting for Fixed Assets easier
The challenges of fixed asset management can be mitigated, to a certain extent, in the usual ways that one can mitigate a high-stress task. This includes things like creating a depreciation schedule for an asset as soon as you acquire it and updating the schedule at regular intervals, keeping all of your depreciation schedules and other asset information in a centralized location and avoiding waiting until the last moment before reporting or tax time to begin accounting for your fixed assets.
Maintaining accurate records of accumulated depreciation is crucial for financial reporting and taxation purposes.
But all of this can only take you so far.
The true key to managing your company’s fixed assets effectively is to embrace technology. The right technology can help with accounting for fixed assets the way not even the most organized human can.
Integration brings it all together
If you have your family office’s investment data in one software application or spreadsheet and the family enterprise’s financial data someplace else (but not the same place as your fixed asset depreciation schedules), let’s just say you should probably stock up on energy drinks before the quarterly reports are due.
A single source of truth for all of your family office’s financial information is a must for maintaining accurate financial reporting and a comprehensive understanding of family finances. You can attain this with an accounting solution that:
- Houses financial data for all of your family enterprise’s entities within a single database so your team avoids the tedium and error potential associated with entering the same data into multiple databases.
- Includes or seamlessly integrates with investment management software and fixed asset management software so that this data is woven right into your overall financial picture.
Accounting automation sets you free
No matter how efficient you are as a family office controller or CFO, there’s nothing more efficient than a process that happens entirely on its own. An accounting solution that automates bottleneck-inducing processes can free you up to fulfill your family office’s mission of ensuring the longevity of their wealth.
An accounting automation solution can also help you record monthly depreciation expenses and transfer them to the accumulated depreciation account, ensuring accurate tracking of the book value of assets over their useful life. Look for an accounting solution that:
- Automatically transfers vouchers to the fixed asset system to eliminate the need for duplicate data entry.
- Automatically updates depreciation schedules.
- Automates approval processes based on parameters you set.
Why choose Gravity Software for fixed asset accounting?
If technology is your best bet for simplifying accounting for fixed assets, Gravity Software is your best bet for that technology. Gravity Software can manage property, plant, and equipment, which are crucial for business operations and revenue generation. Here is only some of what Gravity offers when it comes to accounting for fixed assets:
Full integration for all of your financials
No need for a separate spreadsheet or fixed asset solution; Gravity’s fixed asset management software tracks your fixed assets right alongside your revenues, expenses, and other metrics on the company's balance sheet. Gravity also offers investment management software and multi-entity accounting with consolidated reporting capabilities to give you a truly comprehensive view of your family office’s finances.
Seamless flow from purchase order to invoice to fixed asset
All you have to do is click a checkbox when inputting an invoice and your purchase is recorded as a fixed asset. You can also combine multiple invoices into a single fixed asset if you paid for an item in installments.
Costs associated with a CIP asset are transferred to the applicable fixed asset account once the asset is placed in service.
A centralized location to house all your fixed asset fata
Store details for your fixed assets that go beyond accounting – data that pertains to a warranty or insurance, for example. You can also create a retirement record when an asset is no longer in your possession or its useful life is done.
Tracking the asset value is crucial for accurate financial reporting and effective asset management, ensuring compliance with GAAP rules and Governmental Accounting Standards Board guidelines.
Multiple books so you can handle accounting for fixed assets your way
Maybe you calculate depreciation of a particular asset one way for tax purposes but a different way for your internal accounting. Gravity gives you the freedom to do this by allowing up to ten sets of books for each asset, ensuring accurate financial statements.
Automatic depreciation calculation
Once you set your depreciation method and schedule, Gravity calculates depreciation automatically. This not only takes a huge labor burden off of what is likely in a family office to be a small team, but it also cuts down on the potential for errors. Calculating the fixed asset turnover ratio is important to determine sales efficiency from fixed assets, ensuring that the assets are being used effectively to generate revenue.
Family office controller Bruno Pugliessa is glad he switched to Gravity. The efficiencies it affords have allowed him to focus on the long-term sustainability of the family’s wealth rather than the day-to-day tasks of the office.
“We have to make sure the strategy is right,” he said. “If you’re just crunching numbers, you’re probably losing money in the future.”
See why Gravity Software is everything your family office needs in an accounting solution.
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